Systemically Relevant Business Activities of Insurance Companies

Project Start:01/2017
Researchers:Helmut Gründl, Christian Kubitza, Fabian Regele
Category: Financial Intermediation
Funded by:LOEWE

Systemic risk has been primarily discussed in the context of banking. However, it has become evident that insurance companies may also contribute to systemic risk, although several studies point out that the insurers’ traditional business model is substantially different from that of banks and, therefore, does not pose a significant systemic risk (Thimann 2014). Nonetheless, the involvement in non-traditional activities like CDS trading or security lending may serve as driver for systemic risk (Cummins and Weiss 2014; Thimann 2014; Kessler 2013). In contrast to this, empirical studies based on microprudential systemic risk measures yield mixed results. Some find the insurers’ contribution to systemic risk comparable to that of banks (Adrian and Brunnermeier 2016; Weiß and Mühlnickel 2014), while others highlight their subordinated role (Acharya et al. 2010; Berdin and Sottocornola 2015). Although several studies analyze the link between insurers’ fundamentals and common systemic risk measures (Weiß and Mühlnickel 2014), there are still unconsidered business activities like securities lending or fire sales, which we will explicitly include in our analysis. Thus, we will be the first to identify the drivers of systemic risk by employing CoSP as a systemic risk measure (Kubitza and Gründl 2016) and treat it as depending on certain business activities of insurers. A major focus of our study will lie on granular data about specific business activities, structural differences between insurers and their relationships with systemic risk measures. Our analysis will include statistical tools such as OLS, principal component analysis or generalized linear models.