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Capital regulation and systemic risk in the insurance sector

Thomas Gehrig (Department of Finance, University of Vienna, Vienna, Austria)
Maria Chiara Iannino (Department of Economics and Finance, University of St. Andrews, St. Andrews, UK)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 19 June 2018

Issue publication date: 21 August 2018




This paper aims to analyze systemic risk in and the effect of capital regulation on the European insurance sector. In particular, the evolution of an exposure measure (SRISK) and a contribution measure (Delta CoVaR) are analyzed from 1985 to 2016.


With the help of multivariate regressions, the main drivers of systemic risk are identified.


The paper finds an increasing degree of interconnectedness between banks and insurance that correlates with systemic risk exposure. Interconnectedness peaks during periods of crisis but has a long-term influence also during normal times. Moreover, the paper finds that the insurance sector was greatly affected by spillovers from the process of capital regulation in banking. While European insurance companies initially at the start of the Basel process of capital regulation were well capitalized according to the SRISK measure, they started to become capital deficient after the implementation of the model-based approach in banking with increasing speed thereafter.

Practical implications

These findings are highly relevant for the ongoing global process of capital regulation in the insurance sector and potential reforms of Solvency II. Systemic risk is a leading threat to the stability of the global financial system and keeping it under control is a main challenge for policymakers and supervisors.


This paper provides novel tools for supervisors to monitor risk exposures in the insurance sector while taking into account systemic feedback from the financial system and the banking sector in particular. These tools also allow an evidence-based policy evaluation of regulatory measures such as Solvency II.



This paper focuses on the insurance sector, and differences between the insurance and the banking sectors while the paper presented at the Chapman conference offers greater detail on capital regulation in the banking sector. It is available at:

The authors are grateful for the comments by Charles Calomiris, Robert Engle, Andreas Gr├╝nbichler, Martin Hellwig and Clas Wihlborg.


Gehrig, T. and Iannino, M.C. (2018), "Capital regulation and systemic risk in the insurance sector", Journal of Financial Economic Policy, Vol. 10 No. 2, pp. 237-263.



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