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

Abstract

This paper evaluates whether sophisticated or simple systemic risk measures are more suitable in identifying which institutions contribute to systemic risk. In this investigation, CoVaR, Marginal Expected Shortfall (MES), SRISK and Granger-Causality Networks are considered as sophisticated systemic risk measures. Market capitalization, total debt, leverage, the stock market returns of an institution, and the correlation between the stock market returns of an institution and the market, are considered as simple systemic risk measures. Systemic relevance is approximated by the receipt of financial support during the financial crisis and the classification, as a systemically important institution, by national or international regulators. The analyses are performed for all companies included in the S&P 500 composite index. The findings suggest that simple systemic risk measures have more explanatory power than sophisticated risk measures. In particular, total debt is found to be the most suitable indicator to detect institutions which contribute to systemic risk, according to the explanatory power and model fit. The most suitable sophisticated risk measure seems to be SRISK.

Impact of IRDA Guidelines on Consumer Confidence in Life Insurance Market: Then and Now

“…The scholar further states the accurate identification of these risks and timely implementation of risk management strategies shows positive impact on the performance as well as the value of the insurance company. In context to identification of risks in the insurance sector, the study conducted by Eling and Pankoke (2016) suggest that traditional insurance activity in the life, nonlife, and reinsurance sectors do not contributes to systemic risk. These activities do not increase the insurers’ vulnerability to impairments of the financial system either.…”

Macroprudential Insurance Regulation: A Swiss Case Study

“…The macroprudential perspective is closely related to the concept of systemic risk; for an overview of the existing literature on systemic risk in insurance we refer to [6]. The latter reference analyzes the ability of the insurance industry to disrupt the financial market.…”