Interconnectedness of European insurers and cat shocks contagion effects
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 25 April 2024
Issue publication date: 23 May 2024
Abstract
Purpose
The purpose of this paper is to examine the evolution of interconnectedness of European insurers among themselves, as well as with other non-financial firms, for the period 2000–2021 and to analyze the stock return movements around the costliest catastrophic events (hurricanes) in the past two decades.
Design/methodology/approach
This paper follows the “simple” approach of Patro et al.(2013) and examines the daily stock return correlations of the largest 30 insurers and the largest 30 non-financial firms headquartered in Europe. In addition, the study uses event study methodology to examine stock return movements around the costliest hurricanes.
Findings
We find that the European insurance sector has become highly interconnected during the past two decades; however, its increasing connectedness with non-financial firms is limited to a few firms. In addition, we find weak evidence of the destabilizing effects of catastrophic events on European insurers and non-financial firms; however, the potential for cat risk contagion effects exists as the insurance industry becomes heavily interconnected.
Originality/value
The extant literature is largely concerned with the contribution of the insurance sector to the systemic risk of the financial sector. We focus on a specific region (Europe) and analyze the evolution of interconnectedness of the largest insurers within the insurance sector as well as with the largest non-financial firms encapsulating important crisis periods. In addition, we relate to the literature that examines the market reactions around catastrophic events to test the relevance of traditional insurance activities in instigating potential contagion shocks.
Keywords
Acknowledgements
Declarations:
Conflict of interest: On behalf of all authors, the corresponding author states that there is no conflict of interest.
Citation
Srbinoski, B., Poposki, K. and Bogdanovski, V. (2024), "Interconnectedness of European insurers and cat shocks contagion effects", Journal of Financial Regulation and Compliance, Vol. 32 No. 3, pp. 379-402. https://doi.org/10.1108/JFRC-10-2023-0163
Publisher
:Emerald Publishing Limited
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