Systemic Risk in the Insurance Sector: Review and Directions for Future Research

52 Pages Posted: 14 Mar 2015

See all articles by Martin Eling

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

David Pankoke

University of St. Gallen - School of Finance

Date Written: November 20, 2014

Abstract

This paper reviews the extant research on systemic risk in the insurance sector and outlines new areas of research in this field. We summarize and classify 43 theoretical and empirical research papers from both academia and practitioner organizations. The survey reveals that traditional insurance activity in the life, non-life, and reinsurance sectors neither contributes to systemic risk, nor increases insurers’ vulnerability to impairments of the financial system. However, non-traditional activities (e.g., CDS underwriting) might increase vulnerability and life insurers might be more vulnerable than non-life insurers due to higher leverage. Whether non-traditional activities also contribute to systemic risk is not entirely clear; however, the activities with the potential to contribute to systemic risk include underwriting financial derivatives, providing financial guarantees, and short-term funding. This paper is of interest not only to academics, but is also highly relevant for the industry, regulators, and policymakers.

Keywords: Systemic Risk, Insurance, Solvency II, Financial Crisis

Suggested Citation

Eling, Martin and Pankoke, David, Systemic Risk in the Insurance Sector: Review and Directions for Future Research (November 20, 2014). University of St. Gallen, School of Finance Research Paper No. 2014/21. Available at SSRN: https://ssrn.com/abstract=2577334 or http://dx.doi.org/10.2139/ssrn.2577334

Martin Eling (Contact Author)

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

David Pankoke

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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