Systemic Risk In Property And Casualty Insurance

As a remarkable event of systemic risk,the 2008 financial crisis caused heavy losses not only to banks,securities companies,hedge funds and other financial institutions,but also insurance companies.It came to the public's attention that whether the insurance industry would cause systemic risk.With the opening and deregulation of China's insurance industry and the intensification of financial mixed operation,it is of great theoretical and practical significance to study the possibility of systemic risk in China's insurance industry.Based on the data of China's property and casualty insurance industry in 2015 and network analysis,this paper studies the possibility of causing systemic risk in China's property and casualty insurance industry by contagion through reinsurance business network.We conduct the quantitative analysis of risk contagion and derivation under different negative shocks through network model,and then find the systemically important insurance company based on risk contagion mechanism.We suggest regulators carry out special supervisions on those companies.First of all,this paper combines the existing literatures at home and abroad,and puts forward the basic assumptions of the research:the insurance industry has the possibility of triggering systemic risk.The insurance company's bankruptcy will cause the original insurance company to face the bankruptcy crisis through the reinsurance business network.Once the impacts cannot be consumed within the original insurance companies,it will be passed out to other businesses through the reinsurance business network,and ultimately evolve into an industry crisis.In this paper,we analyze the measurement methods of systemic risk by different scholars.Combined with the actual situation of China's insurance market,this paper chooses the network analysis method to study the systemic risk of China's insurance industry.Secondly,based on the definition of systemic risk,this paper analyzes the system importance of the insurance industry and the risk relevance of the main business activities of the insurance company.Estimate the possibility of systemic risk in China's insurance industry from the macro aspect as well as the micro aspect.Furthermore,we use the theoretical framework of Eisenberg and Noe(2001)to introduce the default contagion model of the systemic risk of the insurance industry,and introduce the network theory to elaborate the influence of the network structure on the systemic risk of the insurance industry,and provide the theoretical basis for the following empirical analysis.Thirdly,this paper uses the matrix method of the maximum entropy principle to obtain the business transfer matrix of the insurance companys' reinsurance businesses,and then establishes a network structure that describes the reinsurance business of the insurance companies in China's insurance industry.Then this paper uses R to draw out the Insurance companies' reinsurance business network structure diagram,points out those reinsurance companies that are in the center of reinsurance trading in an intuitive way.On the basis of network analysis,this paper reveals and analyzes the trajectory of the negative impact in the insurance network by simulating using three kinds of different induction factors.Finally,.based on the analysis of the theoretical mechanism and empirical simulation of the formation of risk contagion in insurance industry,this paper puts forward some corresponding policy suggestions on the supervision of reinsurance and insurance companies.