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Systemic Features of Insurance and Banking, and the Role of Leverage, Capital and Loss Absorption

  • Christian Thimann
Original Article

Abstract

This paper aims at providing a conceptual distinction between banking and insurance with regard to systemic regulation. It discusses key differences and similarities as to how both sectors interact with the financial system. Insurers interact as financial intermediaries and through financial market investments, but do not share the features of banking that give rise to particular systemic risk in that sector, such as the institutional interconnectedness through the interbank market, the maturity transformation combined with leverage, the prevalence of liquidity risk and the process of money creation. The paper also draws attention to three salient features in insurance that need to be taken into account in systemic regulation: the quasi-absence of leverage, the fundamentally different role of capital and the “built-in bail-in” of a significant part of insurance liabilities through policyholder participation. Based on these considerations, the paper argues that, if certain activities were to give rise to concerns about systemic risk in the case of insurers, regulatory responses other than capital surcharges may be more appropriate.

Keywords

systemic risk systemic regulation insurance banking 

Notes

Acknowledgements

This paper has benefited from discussions with, and comments by, H. de Castries, D. Duverne, B. Zoellick, F. Hufeld, S. Lemery, O. de Bandt, D. Elliott, G. Harlin, R. Koijen, A. de Mailly Nesle, J.-D. Letoquart, F. Lorillon and A. de Montchalin, as well as seminar participants at the Paris School of Economics and the University of Munich. It has also benefited from research assistance by Q. Gisserot. Views expressed are those of the author.

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Copyright information

© The International Association for the Study of Insurance Economics 2015

Authors and Affiliations

  • Christian Thimann
    • 1
  1. 1.AXAParis and Paris School of Economics, 48 boulevard JourdanFrance

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