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An empirical assessment of reinsurance risk

  • van Lelyveld, Iman
  • Liedorp, Franka
  • Kampman, Manuel

We analyse the effect of failing reinsurance cover on the stability of Dutch insurers. As insurers often reinsure themselves with other (re)insurers, a firm's loss could spread contagiously through the sector. Using a unique and confidential data set on reinsurance exposures, we gain insight into the reinsurance market structure and perform a scenario analysis to measure contagion risks. Considering entities on a standalone basis, we find no evidence of systemic risk in the Netherlands, even if multiple reinsurance companies fail simultaneously. At group level our analysis points to the contagion risk of in-house reinsurance structures, given that such in-house reinsurance parties are generally not higher capitalised than other group members.

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Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 7 (2011)
Issue (Month): 4 (December)
Pages: 191-203

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Handle: RePEc:eee:finsta:v:7:y:2011:i:4:p:191-203
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  1. Guillaume Plantin, 2006. "Does Reinsurance Need Reinsurers?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(1), pages 153-168.
  2. Christian Upper, 2007. "Using counterfactual simulations to assess the danger of contagion in interbank markets," BIS Working Papers 234, Bank for International Settlements.
  3. Brian J. Hall, 1998. "Regulatory Free Cash Flow and the High Cost of Insurance Company Failures," NBER Working Papers 6837, National Bureau of Economic Research, Inc.
  4. Fenn, George W. & Cole, Rebel A., 1994. "Announcements of asset-quality problems and contagion effects in the life insurance industry," Journal of Financial Economics, Elsevier, vol. 35(2), pages 181-198, April.
  5. Elsinger, Helmut & Lehar, Alfred & Summer, Martin, 2005. "Using Market Information for Banking System Risk Assessment," MPRA Paper 817, University Library of Munich, Germany.
  6. Lelyveld, Iman van & Liedorp, Franka, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," MPRA Paper 806, University Library of Munich, Germany.
  7. James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, vol. 46(4), pages 1223-42, September.
  8. de Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic Risk: A Survey," CEPR Discussion Papers 2634, C.E.P.R. Discussion Papers.
  9. van Lelyveld, Iman & Liedorp, Franka & Pröpper, Marc, 2008. "Stress Testing Linkages between Banks in the Netherlands," MPRA Paper 10092, University Library of Munich, Germany.
  10. John Lewis, 2010. "Reinsurers as financial intermediaries in the market for catastrophic risk," DNB Occasional Studies 802, Netherlands Central Bank, Research Department.
  11. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, vol. 48(4), pages 827-849, August.
  12. Gerald Krenn & Mario Oschischnig, 2003. "Systemic Risk Factors in the Insurance Industry and Methods for Risk Assessment," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 6, pages 62-74.
  13. Fields, Joseph A & Klein, Linda S & Myskowski, Edward G, 1998. "Lloyd's Financial Distress and Contagion within the US Property and Liability Insurance Industry," Journal of Risk and Uncertainty, Springer, vol. 16(2), pages 173-85, May-June.
  14. repec:onb:oenbwp:y:2003:i:6:b:1 is not listed on IDEAS
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