Why do some insurers become systemically relevant?
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Date
2013-07-04
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Abstract
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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Keywords
financial crises, insurance industry, systemic risk