An Empirical assessment of reinsurance risk
AbstractWe analyse the effect of failing reinsurance cover on the stability of Dutch insurers. As insurers often reinsure themselves with other (re)insurers, losses could spread contagiously through the sector. Using a unique and confidential data set on reinsurance exposures, we perform a scenario analysis to measure contagion risks. Based on current exposures, we find no evidence of systemic risk in the Netherlands, even if multiple reinsurance companies fail simultaneously. Next, we analyse to what extent the financial position of individual primary insurers is affected following a particular shock, considering solvency, capital and profit levels. The life insurance industry is hardly affected by reinsurance failures. The non-life industry, however, is vulnerable to a crisis in the European reinsurance market. We also find that members of smaller insurance groups are particularly exposed.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 201.
Date of creation: Feb 2009
Date of revision:
reinsurance; contagion; simulation.;
Other versions of this item:
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-07 (All new papers)
- NEP-EEC-2009-03-07 (European Economics)
- NEP-IAS-2009-03-07 (Insurance Economics)
- NEP-RMG-2009-03-07 (Risk Management)
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