The Reinsurance Network Among U.S. Property-Casualty Insurers: Microstructure, Insolvency Risk, and Contagion
Journal of Risk and Insurance, 87(2): 253-284, June 2020
66 Pages Posted: 8 Feb 2015 Last revised: 11 May 2020
Date Written: January 15, 2018
Reinsurance is the primary source of interconnectedness in the insurance industry. As such, reinsurance connectivity provides a transmission mechanism for financial shocks and potentially exposes insurers to contagion and systemic risk. In this paper, connectivity within the U.S. property-casualty (P/C) reinsurance market is modeled as a network. We model the network of all primary insurers and reinsurers in the market. We analyze all bilateral reinsurance counterparty relationships (domestic and foreign) of U.S. P/C insurers, and we model both intra- and inter-group transactions. We extend the prior literature by providing a detailed examination of the reinsurance network structure, including network density, network components, centrality of individual insurers, and sub-network analysis for top insurers and for insurance groups. Our analysis of contagion and insolvency risk reveals that even the failure of the top 10 in-degree or in-strength insurers with 100 percent loss given default would not lead to widespread insolvencies in the U.S. P/C insurance industry.
Keywords: Reinsurance, network analysis, insolvency, contagion, systemic risk, property-casualty insurance
JEL Classification: G20, G22, L14, G01
Suggested Citation: Suggested Citation