infonet-economy

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.