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)1-32
Number of pages32
JournalJournal of Risk and Insurance
DOIs
Publication statusE-pub ahead of print - 4 Nov 2018

Fingerprint

Contagion
Reinsurance
Insolvency risk
Insurer
Microstructure
Casualties
Insurance industry
Banking risk
Connectivity
Network analysis
Loss given default
Intergroup
Network structure
Transmission mechanism
Systemic risk
Centrality
Bilateral
Financial shocks

Keywords

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

Cite this

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title = "The Reinsurance Network Among U.S. Property-Casualty Insurers: Microstructure, Insolvency Risk, and Contagion",
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.",
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The Reinsurance Network Among U.S. Property-Casualty Insurers: Microstructure, Insolvency Risk, and Contagion. / CHEN, Hua; CUMMINS, J. David; SUN, Tao; WEISS, Mary A.

In: Journal of Risk and Insurance, 04.11.2018, p. 1-32.

Research output: Journal PublicationsJournal Article (refereed)

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