Systemic Risk in Financial Markets: How Systemically Important Are Insurers?

This study investigates how insurers contribute to systemic risk in the global financial system. In a modeling framework embracing publicly traded and nonpublic firms, the financial system is represented by 201 major banks and insurers over the period from 2004 through 2014. In the aggregate, the insurance sector contributes relatively little to systemic losses; during the financial crisis and the European sovereign debt crisis, its risk share averaged 9 percent. Individually, however, several multi‐line and life insurers appear to be as systemically risky as the riskiest banks. Our results, therefore, affirm that some insurers are systemically important and indicate that insurers’ level of systemic risk varies by line of business. We discuss several important implications of our results for managing systemic risk in insurance, arguing for a combination of entity‐ and activity‐based regulation.