On the exposure of insurance companies to sovereign risk—Portfolio investments and market forces

Robert Düll, Felix König and Jana Ohls ()

Journal of Financial Stability, 2017, vol. 31, issue C, 93-106

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 2008–1 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).

Keywords: Insurance; Sovereign risk; Sovereign bond portfolio (search for similar items in EconPapers)
JEL-codes: G15 G22 G28 (search for similar items in EconPapers)
Date: 2017
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Working Paper: On the exposure of insurance companies to sovereign risk: Portfolio investments and market forces (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:31:y:2017:i:c:p:93-106

DOI: 10.1016/j.jfs.2017.06.008

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