The rising interconnectedness of the insurance sector

Abstract

This paper examines the long-term evolution of the linkages of the insurance sector with financial and nonfinancial companies. We develop a measure of connectedness using a multifactor model of weekly equity returns. The empirical analysis is conducted from 1973 to 2018, for 16 developed countries, at both the sectoral and institution levels. The results indicate that, unlike other sectors, the connectedness level of the insurance industry has strengthened over time.We also find that the linkages of the largest insurance companies with financial and nonfinancial firms are structurally different but as high as those of the largest banks.

Quantifying interconnectedness and centrality ranking among financial institutions with TVP-VAR framework

“…It reflects that the house price control policies intensify the connections among different sectors. This is consistent with the empirical results for the developed countries (Jourde 2022 ).…”

“… 2015 ). Differently, Jourde ( 2022 ) shows that the interconnectedness of the insurance industry with financial and non-financial companies has increased over the last decades for 16 developed countries. Some of our empirical results also suggest that after 2017 the outgoing connections from insurers to both brokers and real estates show an increasing trend.…”

Interconnectedness of European insurers and cat shocks contagion effects

“…Our results corroborate that the existing evidence of increasing interconnectedness of insurers and other financial institutions (e.g. Baluch et al, 2011;B egin et al, 2019;Bierth et al, 2015;Billio et al, 2012;Gehrig and Iannino, 2018;Jourde, 2022;Gehrig and Iannino, 2018) find similar patterns in the interconnectedness between European insurers and banks, especially amplified around crisis periods and the implementation of the Solvency II Directive. Although Gehrig and Iannino (2018) concluded that the introduction of Solvency II may have caused a spill over of systemic shocks from the insurance industry to banking, we argue that there is a regime shift around Solvency II as the largest insurers have, historically, similar or decreasing levels of interconnectedness with non-financial firms despite the growing interconnectedness between themselves.…”

“…Similarly, some of the lowcorrelated non-financial firms become more heavily correlated with insurers during the onset of the COVID-19 pandemic. Jourde (2022) found increasing interconnectedness of sector-specific non-financial firms, such as the oil and gas sector firms. Similarly, we observe the largest spikes in correlations during the COVID-19 pandemic in the firms directly related Finally, we find weak evidence of the destabilizing effects of catastrophic events on European insurers and non-financial firms.…”

“…Most of the studies examine the contribution of the insurance sector to the systemic risk of the financial sector and the level of interconnectedness of insurers with other financial entities. Our study is closely related to Jourde (2022), who examined the interconnectedness of the insurance sector with other financial and non-financial entities. Although Jourde (2022) provided an extensive global analysis of the long-term connectedness of the insurance sector, we focus on a specific region (Europe) and analyze the evolution of interconnectedness of the largest insurers within the insurance sector as well as with the largest non-financial firms encapsulating important crisis periods, such as the global financial crisis, the European debt crisis and the COVID-19 pandemic.…”