Insurance Activities and Systemic Risk

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis paper investigates systemic risk in the insurance industry. We first analyze the systemic contribution of the insurance industry vis-à-vis other industries by applying 3 measures, namely the linear Granger causality test, conditional value at risk and marginal expected shortfall, on 3 groups, namely banks, insurers and non-financial companies listed in Europe over the last 14 years. We then analyze the determinants of the systemic risk contribution within the insurance industry by using balance sheet level data in a broader sample. Our evidence suggests that i) the insurance industry shows a persistent systemic relevance over time and plays a subordinate role in causing systemic risk compared to banks, and that ii) within the industry, those insurers which engage more in non-insurance-related activities tend to pose more systemic risk. In addition, we are among the first to provide empirical evidence on the role of diversification as potential determinant of systemic risk in the insurance industry. Finally, we confirm that size is also a significant driver of systemic risk, whereas price-to-book ratio and leverage display counterintuitive results.

Systemic Risk in the Insurance Sector: A Review and Directions for Future Research

“…3.4.1) . Furthermore, we differentiate business activities according to their degree of innovation, thus classifying them as either traditional or nontraditional insurance business, as is common in the literature (see, e.g., Baluch et al., ; Kessler, ; Cummins and Weiss, and Berdin and Sottocornola, , instead use the terms core and noncore activities). This classification is not always clear‐cut but, in general, we consider an activity to be traditional when its accompanying risks are mostly (1) idiosyncratic, (2) not correlated with one another, and (3) not influenced by economic business cycles (see IAIS, ) .…”

“…Their results support the view that banks contribute the most to systemic risk. See also Berdin and Sottocornola ().…”

Modeling System Risk in the South African Insurance sector: A Dynamic Mixture Copula Approach

“…Their findings reveal that size is the main driver of insurers' exposure and contribution to systemic risk in the U.S., and the exposure to systemic risk additionally depends on non-traditional and non-insurance activities like CDS writing. Berdin and sottocornola (2015) apply linear Granger causality test, ΔCoVaR, MES to measure systemic for bank, insurance, and non-financial sectors in Europe. They find that the insurance industry shows a persistent systemic relevance over time and plays a subordinate role in causing systemic risk compared to banks.…”

“…The 2007-2009 financial crisis has revealed that the insurance sector was partly responsible of the crisis with American International Group (AIG) becoming the first example of an insurer in the U.S. that received federal assistance to prevent bankruptcy due to it being considered as systemically important. As a consequence, regulators such as Solvency II board, Financial Stability Board (FSB), the International Association of Insurance Supervisors (IAIS) have raised concern about identifying, monitoring, and mitigating systemic risk in the insurance Berdin and sottocornola (2015) apply linear Granger causality test, conditional value at risk (CoVaR,) and MES to analyse systemic risk in the Eurozone banking, insurance, and non-financial sector.…”

Systemic Risk in Insurance: Towards a New Approach

“…total exposures and activities. However, as Berdin and Sottocornola (2015) showed, certain activities, which do not only include insurance activities such as life or non-life lines of business, but also certain balance sheet items or certain managerial practices such as leverage or funding structures, tend to drive the contribution to systemic risk of insurers beyond the size of the institution or beyond the aggregated systemic contribution of the single institution. 4 To be more precise, in our analysis we considered the cross-section (i.e.…”