Systemic Risk and the U.S. Insurance Sector

Beginning with the bursting of the housing bubble in 2007, the term systemic risk has been gathering increasing importance for all financial market players (investors, regulators, financial institution management, etc.). In particular, defining systemic risk, mitigating the effects of systemic events, and developing strategies to forestall future systemic crises have been the focus in regulatory discussions at every level of functional regulator and across all financial markets. In fact, new regulation has been proposed for financial institutions at the federal level, including for some insurers. Therefore, a specific question arises as to whether a financial institution such as an insurer is systemically risky or not. Insurers, with the possible exception of monoline financial guarantee, strongly maintain that insurance is not systemically risky, while some regulators disagree. Very little direct research concerning insurance and systemic risk exists however