The Geneva Risk and Insurance Review

, Volume 41, Issue 1, pp 73–106 | Cite as

Analysis of Systemic Risk in the Insurance Industry

  • Catherine Bobtcheff
  • Thomas Chaney
  • Christian Gollier


In this paper, we discuss the systemic relevance of the insurance sector. Systemic risk is defined as the propensity of a financial institution to be undercapitalised when the financial system as a whole is undercapitalised. By the law of large numbers, traditional lines of insurance with idiosyncratic non-catastrophic risks cannot be systemic. On the contrary, undiversified insurers specialised in activities whose insured risks are highly correlated with GDP are systemic. In the life insurance sector, some contractual clauses such as unhedged minimum guarantees and free options to surrender raise the chance of systemic relevance. On the contrary, life insurers satisfying the classic solvency capital requirements contribute to the liquidity of financial markets thanks to the long-termist approach of their portfolio management. Finally, using historical data in the U.S. on the contribution of different sectors to the aggregate volatility of the economy, we show that investment banking is almost twice as volatile as aggregate GDP, while insurance is one fifth as volatile as aggregate GDP. The insurance sector thus appears to be a stabilising force of the economy.


insurance industry diversification systemic risk firm size volatility 



We acknowledge the financial support of AXA for this research. We thank Amélie de Montchalin and Christian Thimann for useful comments on an earlier version of this paper. We also thank the editor, Michael Hoy and two anonymous reviewers for their constructive comments and suggestions. The research leading to these results has also received funding from the SCOR Chair “Risk Markets and Value Creation” at TSE.


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Copyright information

© The International Association for the Study of Insurance Economics 2016

Authors and Affiliations

  • Catherine Bobtcheff
    • 1
  • Thomas Chaney
    • 1
  • Christian Gollier
    • 1
  1. 1.Toulouse School of EconomicsToulouse Cedex 6France

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