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On the exposure of insurance companies to sovereign risk − portfolio investments and market forces 1

Düll, Robert, König, Felix and Ohls, Jana (2017) On the exposure of insurance companies to sovereign risk − portfolio investments and market forces 1. Journal of Financial Stability, 31. pp. 93-106. ISSN 1572-3089

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Identification Number: 10.1016/j.jfs.2017.06.008

Abstract

A sovereign debt crisis can have significant knock-on effects in the financial markets and put financial stability at risk. This paper focuses on the transmission of sovereign risk to insurance companies as some of the largest institutional investors in the sovereign bond market. We use a firm level panel dataset that covers large insurance companies, banks and non-financial firms from nine countries over the time period from 1 January 2008 to 1 May 2013. We find significant and robust transmission effects from sovereign risk to domestic insurers. The impact on insurers is not significantly different from that on banks but larger than for non-financial firms. We find that systemically important insurers are more closely linked to the domestic sovereign. Based on European data, we show that risks in sovereign bond portfolios are an important driver of insurer risk, which is not reflected in current insurance regulation (incl. Solvency II in Europe).

Item Type: Article
Official URL: https://www.journals.elsevier.com/journal-of-finan...
Additional Information: © 2017 Elsevier B.V.
Divisions: Economics
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Sets: Departments > Economics
Date Deposited: 06 Jul 2017 08:18
Last Modified: 20 Sep 2019 02:28
URI: http://eprints.lse.ac.uk/id/eprint/83195

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