|Category:||Financial Intermediation, Systemic Risk Lab|
The project focuses on the interconnectedness of insurance companies in order to examine one mechanism for the transmission of system risk identified by the Financial Stability Oversight Committee (FSOC) in their determination of non-bank systemic risk: “disruptions caused by the liquidation of a nonbank financial company's assets.” In the recent past, both the FSOC and the International Association of Insurance Supervisors (IAIS) have designated Prudential and AIG as systemically important. Metlife has been designated a globally systemically important insurance company by the IAIS and is under consideration by the FSOC. Despite their designation as systemically important, little research has been conducted as to the potential effect of the liquidation of insurers’ portfolios and its contribution to the transmission of systemic risk.
Using holdings and transactions data on all insurers in the U.S. (A.M. Best database, available at the U.S. SEC), this study examines the degree to which insurance companies’ investment portfolios are correlated across asset classes and through time using cluster analysis. In addition, the project explores the degree of interconnectedness of holdings and transaction behavior among insurance companies through network analysis.
We seek to understand whether insurance companies contribute to systemic risk through portfolio rebalancing and to what extent they are absorbing financial shocks or propagating them. We also are interested in whether the potential for systemic risk transmission differs by type and size of insurer. We intend to examine events that would lead insurers to rebalance their portfolios against a common shock such as the financial crisis in 2008 and 2009, the debt ceiling/sovereign debt crisis in the summer of 2010, various municipal bond events such as the defaults of Harrisburg, Pennsylvania and Jefferson County, and individual bonds downgrades.
|224||Mila Getmansky Sherman, Giulio Girardi, Stanislava Nikolova, Loriana Pelizzon, Kathleen Weiss Hanley||Portfolio Similarity and Asset Liquidation in the Insurance Industry||2018||Financial Intermediation, Systemic Risk Lab||Interconnectedness, Asset Liquidation, Similarity, Financial Stability, Insurance Com- panies, SIFI|