Portfolio Similarity and Asset Liquidation in the Insurance Industry
59 Pages Posted: 10 Oct 2017 Last revised: 14 Jul 2020
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Portfolio Similarity and Asset Liquidation in the Insurance Industry
Portfolio Similarity and Asset Liquidation in the Insurance Industry
Date Written: July 2, 2020
Abstract
We examine whether the concern of academics and regulators about the potential for insurers to
sell similar assets due to the overlap in their holdings is justified. We measure this overlap using
cosine similarity and find that insurers with more similar portfolios have larger subsequent common
sales. When faced with a shock to their assets or liabilities, exposed insurers with greater portfolio
similarity have larger common sales that impact prices. Our portfolio similarity measure can be
used by regulators to predict the common selling of any institution that reports security or asset
class holdings regardless of its public company status, making the measure a useful ex-ante predictor of divestment behavior in times of market stress.
Keywords: Interconnectedness, asset liquidation, similarity, financial stability, insurance companies, fire sales
JEL Classification: G11, G18, G2
Suggested Citation: Suggested Citation