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An Empirical assessment of reinsurance risk

  • Iman van Lelyveld
  • Franka Liedorp
  • Manuel Kampman

We 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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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 201.

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Date of creation: Feb 2009
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Handle: RePEc:dnb:dnbwpp:201
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Web page: http://www.dnb.nl/en/

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  1. 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.
  2. Iman van Lelyveld & Franka Liedorp, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
  3. repec:onb:oenbwp:y:2003:i:6:b:1 is not listed on IDEAS
  4. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Using Market Information for Banking System Risk Assessment," International Journal of Central Banking, International Journal of Central Banking, vol. 2(1), March.
  5. Guillaume Plantin, . "Does Reinsurance Need Reinsurers?," GSIA Working Papers 2005-E1, Carnegie Mellon University, Tepper School of Business.
  6. James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, vol. 46(4), pages 1223-42, September.
  7. Christian Upper & Andreas Worms, 2001. "Estimating bilateral exposures in the German interbank market: is there a danger of contagion?," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 211-229 Bank for International Settlements.
  8. 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.
  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. Christian Upper, 2007. "Using counterfactual simulations to assess the danger of contagion in interbank markets," BIS Working Papers 234, Bank for International Settlements.
  11. 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.
  12. John Lewis, 2010. "Reinsurers as financial intermediaries in the market for catastrophic risk," DNB Occasional Studies 802, Netherlands Central Bank, Research Department.
  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. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 0035, European Central Bank.
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