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The network structure and systemic risk in the global non-life insurance market

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  • Kanno, Masayasu

Abstract

This paper contributes to the literature on systemic risk by assessing the systemic importance of insurers in the global non-life insurance market. First, we estimate the bilateral reinsurance claims matrix using the aggregate outstanding reinsurance data from ISIS and theoretically analyze the interconnectedness in the global reinsurance network using network indicators. The robustness of the estimated matrix is fully assured by sensitivity analysis. Second, we theoretically analyze the contagious defaults introducing the Eisenberg–Noe framework. Reinsurers play a dominant role in the reinsurance network and most of them are included in our data sample. The network analysis finds that some reinsurers with large centrality measures are central in the hierarchical structure of the network. The default analysis shows the occurrences of many stand-alone defaults and only one contagious default via the global reinsurance network after the global financial crisis. In addition, one stress test based on a hypothetical severe stress scenario predicts a few occurrences of contagious defaults in the future. It follows from these analyses that systemic risk via the global reinsurance network is relatively restricted in the global non-life insurance market. In conclusion, our methodology would help supervisory authorities develop an assessment approach for interconnectedness in the global reinsurance network and aid the implementation of insurer stress tests for default contagion.

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  • Kanno, Masayasu, 2016. "The network structure and systemic risk in the global non-life insurance market," Insurance: Mathematics and Economics, Elsevier, vol. 67(C), pages 38-53.
    • Handle: RePEc:eee:insuma:v:67:y:2016:i:c:p:38-53
    DOI: 10.1016/j.insmatheco.2015.12.004
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    References listed on IDEAS

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    2. Gong, Xiao-Li & Liu, Xi-Hua & Xiong, Xiong & Zhang, Wei, 2019. "Financial systemic risk measurement based on causal network connectedness analysis," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 290-307.
    3. Kanno, Masayasu, 2019. "Network structures and credit risk in cross-shareholdings among listed Japanese companies," Japan and the World Economy, Elsevier, vol. 49(C), pages 17-31.
    4. Anna Denkowska & Stanisław Wanat, 2020. "A Tail Dependence-Based MST and Their Topological Indicators in Modeling Systemic Risk in the European Insurance Sector," Risks, MDPI, vol. 8(2), pages 1-22, April.
    5. Kanno, Masayasu, 2020. "Interconnectedness and systemic risk in the US CDS market," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    6. Deev, Oleg & Lyócsa, Štefan, 2020. "Connectedness of financial institutions in Europe: A network approach across quantiles," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 550(C).
    7. Chatterjee, Somnath & Jobst, Andreas, 2019. "Market-implied systemic risk and shadow capital adequacy," Bank of England working papers 823, Bank of England.
    8. Chen, Lv & Shen, Yang & Su, Jianxi, 2020. "A continuous-time theory of reinsurance chains," Insurance: Mathematics and Economics, Elsevier, vol. 95(C), pages 129-146.
    9. Eckert, Christian & Gatzert, Nadine & Heidinger, Dinah, 2020. "Empirically assessing and modeling spillover effects from operational risk events in the insurance industry," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 72-83.
    10. Kotlicki, Artur & Austin, Andrea & Humphry, David & Burnett, Hanna & Ridgill, Philip & Smith, Sam, 2023. "Network analysis of the UK reinsurance market," Bank of England working papers 1000, Bank of England.
    11. Torri, Gabriele & Radi, Davide & Dvořáčková, Hana, 2022. "Catastrophic and systemic risk in the non-life insurance sector: A micro-structural contagion approach," Finance Research Letters, Elsevier, vol. 47(PB).
    12. Masayasu Kanno, 2018. "Bank–insurer–firm tripartite interconnectedness of credit risk exposures in a cross-shareholding network," Risk Management, Palgrave Macmillan, vol. 20(4), pages 273-303, November.
    13. Thomas R. Berry-Stölzle & Meghan Irene Esson, 2024. "Capital issuances and premium growth in the property–liability insurance industry: evidence from the financial crisis and COVID-19 recession," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 49(1), pages 1-25, January.
    14. Silva, Walmir & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2017. "An analysis of the literature on systemic financial risk: A survey," Journal of Financial Stability, Elsevier, vol. 28(C), pages 91-114.

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