1. Systemic Risk and Insurance
Yas Suttakulpiboon

3. Definition
Systemic risk means a risk of disruption in the financial system with the potential to have serious negative consequences for the internal market and the real economy. All types of financial intermediaries, markets and infrastructure may be potentially systemically important to some degree

5. Systemic Risk vs Financial Crisis

6. Systemic Risk vs Market Risk or Price Risk

7. Systemic risk is not the same as Systematic risk

8. Anatomy of Systemic Risk
Size
Market share concentration
Competitive barriers to entry or how easily a product can be substituted
Interconnectedness
Complexity
Economic multiplier of all other commercial activities dependent specifically on that institution

9. Let’s Analyze the Systemic Risk of Insurance Companies

10. TBTF TICTF G-SIFI, D-SIFI
Terms to know
TBTF TICTF G-SIFI, D-SIFI

13. Systemic Risk Measurement
SRISK
CoVaR
Pair/Vine Copula

14. SRISK
A financial institution represents a systemic risk if it becomes undercapitalized when the financial system as a whole is undercapitalized.
SRISK can be interpreted as the amount of capital that needs to be injected into a financial firm as to restore a certain form of minimal capital requirement.

15. SRISK has several nice properties:
SRISK is expressed in monetary terms and is, therefore, easy to interpret.
SRISK can be easily aggregated across firms to provide industry and even country specific aggregates.
The computation of SRISK involves variables which may be viewed on their own as risk measures, namely the size of the financial firm, the leverage (ratio of assets to market capitalization), and a measure of how the return of the firm evolves with the market

18. CoVaR
Example: What is Citibank’s 5% VaR when JP Morgan Chase is at its 5% VaR?

19. CoVaR
CoVaR simply tells us the boundary on a large loss for some institution(s), given that a particular institution is stressed to a certain degree
We need to compare the CoVaR measure to another “reference” measure in order to see the change in the boundary caused by institution i’s financial stress

20. Vine Copula
Combined with bivariate copulas, regular vines have proven to be a flexible tool in high-dimensional dependence modeling.
Vines owe their increasing popularity to the fact that they leverage from bivariate copulas and enable extensions to arbitrary dimensions

23. Systemic Risk and Insurance: Issues to Consider

24. Systemic Risk and Insurance: Issues to Consider
Look at the anatomy of systemic risk… do you think “traditional” insurance companies would impose systemic risk to the economy?
MET LIFE Case
Bank run… yes! Insurance run? 
Non-traditional insurers?
Shadow insurance and regulatory challenges
Can catastrophe risk be managed?