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Capital regulation and systemic risk in the insurance sector

Research output: Contribution to journalArticle


Thomas Gehrig, Maria Chiara Iannino

School/Research organisations


This paper analyses 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.
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 policy makers 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.



Original languageEnglish
Pages (from-to)237-263
JournalJournal of Financial Economic Policy
Issue number2
Early online date19 Jun 2018
Publication statusE-pub ahead of print - 19 Jun 2018

    Research areas

  • Insurance, Banks, Economics of Regulation , Financial risk, Capital shortfall, Insurance sector, Systemic risk

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