The Reinsurance Network Among U.S. Property-Casualty Insurers: Microstructure, Insolvency Risk, and Contagion

Hua CHEN, J. David CUMMINS, Tao SUN, Mary A. WEISS

Research output: Journal PublicationsJournal Article (refereed)

1 Scopus Citations

Abstract

Reinsurance is the primary source of interconnectedness in the insurance industry. As such, reinsurance connectivity provides a transmission mechanism for financial shocks and potentially exposes insurers to contagion and systemic risk. In this article, connectivity within the U.S. property–casualty (P/C) reinsurance market is modeled as a network. We model the network of all primary insurers and reinsurers in the market. We analyze all bilateral reinsurance counterparty relationships (domestic and foreign) of U.S. P/C insurers, and we model both intra- and intergroup transactions. We extend the prior literature by providing a detailed examination of the reinsurance network structure, including network density, network components, centrality of individual insurers, and sub-network analysis for top insurers. Our analysis of contagion and insolvency risk reveals that even the failure of the top 10 in-degree or in-strength insurers with 100 percent loss given default would not lead to widespread insolvencies in the U.S. P/C insurance industry.

Original languageEnglish
Pages (from-to)253-284
Number of pages32
JournalJournal of Risk and Insurance
Volume87
Issue number2
Early online date4 Nov 2018
DOIs
Publication statusPublished - Jun 2020

Keywords

  • Reinsurance
  • network analysis
  • insolvency
  • contagion
  • systemic risk
  • property casualty insurance

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