Systemic Risk and the U.S. Insurance Sector

53 Pages Posted: 15 Dec 2010 Last revised: 20 Apr 2014

J David Cummins

Temple University - Risk Management & Insurance & Actuarial Science

Mary A. Weiss

Temple University

Multiple version iconThere are 2 versions of this paper

Date Written: July 27, 2011

Abstract

This paper examines the potential for the U.S. insurance industry to cause systemic risk events that spill over to other segments of the economy. We examine primary indicators that determine whether institutions are systemically risky as well as contributing factors that exacerbate vulnerability to systemic events. Evaluation of systemic risk is based on a detailed financial analysis of the insurance industry, its role in the economy, and the interconnectedness of insurers. The primary conclusion is that the core activities of the U.S. insurers do not pose systemic risk. However, life insurers are vulnerable to intra-sector crises because of leverage and liquidity risk; and both life and property-casualty insurers are vulnerable to reinsurance crises arising from counterparty credit exposure. Non-core activities such as derivatives trading have the potential to cause systemic risk, and most global insurance organizations have exposure to derivatives markets. To reduce systemic risk from non-core activities, regulators need to develop better mechanisms for insurance group supervision.

Keywords: Insurance, Reinsurance, Systemic Risk, Contagion

JEL Classification: G21, G22, G28

Suggested Citation

Cummins, J David and Weiss, Mary A., Systemic Risk and the U.S. Insurance Sector (July 27, 2011). Available at SSRN: https://ssrn.com/abstract=1725512 or http://dx.doi.org/10.2139/ssrn.1725512

J. David Cummins (Contact Author)

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1801 Liacouras Walk.
Philadelphia, PA 19122
United States
215-204-8468 (Phone)
215-204-4712 (Fax)

Mary A. Weiss

Temple University ( email )

Fox School of Business and Management
1801 Liacouras Walk
Philadelphia, PA 19122
United States
215-204-1916 (Phone)

HOME PAGE: http://www.sbm.temple.edu/~rmidept/weiss.html

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