Systemic Risk and the Regulation of Insurance Companies

Acharya, Viral V.; Biggs, John H.; Hạnh, Lê Thị Mỹ; Richardson, Matthew; Ryan, Stephen G.

doi:10.1002/9781118258231.ch9

Cited by 27 publications

(25 citation statements)

References 3 publications

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“…Government policy and regulation also can contribute to financial system fragility. For example, deposit insurance and insurance guaranty fund protection reduce the probability of runs but also can create moral hazard for banks and insurers, increasing the risk of financial distress (Acharya et al, ). Regulation can also create other adverse incentives.…”

Section: Systemic Risk: Definition Primary Indicators and Contributmentioning

confidence: 99%

“…Although U.S. regulation is “Balkanized” and the cumbersome regulatory structure often impedes necessary reforms, federal bank regulators did not perform well in the period leading up to the financial crisis, and it is not clear that federal regulators would be more effective than state regulators. Although the lack of a single overseer does create problems in managing multistate insolvency risk (Acharya et al, ), nationally significant insurers are reviewed every quarter by the NAIC, and those that appear to be performing poorly are prioritized for analysis by experienced regulators (the Financial Analysis Working Group).…”

Section: Systemic Risk In the Core Activities Of Insurers: An Empiricmentioning

confidence: 99%

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Systemic Risk and The U.S. Insurance Sector

Cummins¹,

Weiss²

2014

J of Risk & Insurance

159

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This article examines the potential for the U.S. insurance industry to cause systemic risk events that spill over to other segments of the economy. We examine primary indicators of systemic risk as well as contributing factors that exacerbate vulnerability to systemic events. Evaluation of systemic risk is based on a detailed financial analysis of the insurance industry, its role in the economy, and the interconnectedness of insurers. The primary conclusion is that the core activities of U.S. insurers do not pose systemic risk. However, life insurers are vulnerable to intrasector crises, and both life and property–casualty insurers are vulnerable to reinsurance crises. Noncore activities such as financial guarantees and derivatives trading may cause systemic risk, and interconnectedness among financial institutions has grown significantly in recent years. To reduce systemic risk from noncore activities, regulators need to continue efforts to strengthen mechanisms for insurance group supervision.

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Section: Systemic Risk: Definition Primary Indicators and Contributmentioning

confidence: 99%

Section: Systemic Risk In the Core Activities Of Insurers: An Empiricmentioning

confidence: 99%

Systemic Risk and The U.S. Insurance Sector

Cummins¹,

Weiss²

2014

J of Risk & Insurance

159

View full text Add to dashboard Cite

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“…However, the empirical evidence on the questions whether insurers can become systemically relevant and whether these factors drive systemic risk is limited. Shortly after the financial crisis, Acharya, Biggs, Richardson, and Ryan (2009), Harrington (2009), and Cummins and Weiss (2014) discussed the role of insurers during the financial crisis 3 . More recently, due to the increased attention regulators are giving this topic, several studies have analyzed different aspects of systemic risk in insurance.…”

Section: Introductionmentioning

confidence: 99%

Size is everything: Explaining SIFI designations

2016

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In this paper, we study the determinants of the systemic importance of banks and insurers during the financial crisis. We investigate the methodology of regulators to identify global systemically important financial institutions and find that firm size is the only significant predictor of the decision of regulators to designate a financial institution as systemically important. Further, using a cross‐sectional quantile regression approach, we find that Marginal Expected Shortfall and ΔCoVaR as two common measures of systemic risk produce inconclusive results concerning the systemic relevance of banks and insurers during the crisis.

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“…On the one hand, total assets could be positively correlated with an insurer's contribution and exposure to systemic risk, because larger insurance companies have a wider range of different risks insured and thus are less prone to suffer from cumulative losses (see Hagendorff et al, 2011). At the same time, larger insurance companies could become too-interconnected-to-fail and thus systemically relevant (see Acharya et al, 2009). The IAIS shares this latter argument and proposes insurer size to be a key determinant of an insurer's ability to destabilize the financial sector.…”

Section: Key Iais Indicators Of Systemic Relevancementioning

confidence: 99%

“…Although these studies shed some light on the question of whether the interconnectedness of banks and insurers could destabilize the financial sector, they do not answer the question regarding whether insurers actually did contribute to the severity of the financial crisis. Acharya et al (2009) 6 take a first step in this direction by analyzing the contribution of large U.S. insurers to the instability of the financial sector after the collapse of Lehman Brothers. These researchers document the first empirical evidence of a systemic relevance of large insurers but do not perform a crosssectional analysis of the systemic risk contributions that were found.…”

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confidence: 99%

Why Do Some Insurers Become Systemically Relevant?

Weiß

Mühlnickel

2013

SSRN Journal

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Are some insurers relevant for the stability of the financial system? And if yes, what firm fundamentals and aspects of insurers' business models cause them to destabilize an entire financial sector? We find that several insurers did indeed contribute significantly to the instability of the U.S. financial sector during the recent financial crisis. We empirically confirm that insurers that were most exposed to systemic risk were larger, relied more heavily on non-policyholder liabilities and had higher ratios of investment income to net revenues on average. Contrary to current conjectures of insurance regulators, we find that the contribution of insurers to systemic risk is only driven by insurer size.

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Systemic Risk and the Regulation of Insurance Companies

Cited by 27 publications

References 3 publications

Systemic Risk and The U.S. Insurance Sector

Systemic Risk and The U.S. Insurance Sector

Size is everything: Explaining SIFI designations

Why Do Some Insurers Become Systemically Relevant?

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