The Network Structure and Systemic Risk in the Global Non-life Insurance Market
Masayasu Kannoa,∗a Kanagawa University, JapanAbstract
This paper contributes to the literature on systemic risk by assessing the systemic importance of insurers in the global
non-life insurance market. First, we estimate the bilateral reinsurance claims matrix using the aggregate reinsurance
outstanding data from ISIS and theoretically analyze the interconnectedness in the global reinsurance network using
network indicators. The robustness of the estimated matrix is fully assured by sensitivity analysis. Second, we theoretically analyze the contagious defaults introducing the Eisenberg–Noe framework. Reinsurers play a dominant rolein the reinsurance network and most of them are included in our data sample. The network analysis ﬁnds that somereinsurers with large centrality measures are central in the hierarchical structure of the network. The default analysis
shows the occurrences of many stand-alone defaults and only one contagious default via the global reinsurance network
after the global ﬁnancial crisis. In addition, one stress test based on a hypothetical severe stress scenario predicts a
few occurrences of contagious defaults in the future. In conclusion, systemic risk via the global reinsurance network isrelatively restricted in the non-life insurance market.
Keywords: systemic risk; interconnectedness; contagious default; network indicator; G-SIIs

1. Introduction
There has been growing interest in the systemic importance of insurers among regulators and hence the lack of boththeoretical and empirical studies on the role of reinsurers1 and their interconnectedness has been an issue to be solved.
The purpose of this study is to analyze the systemic importance of the global reinsurance network to the global non-life
insurance market. The network analysis plays a signiﬁcant role in the analysis of systemic importance.
In May 2012, as the global systemic risk regulation in the insurance sector, the International Association of Insurance
Supervisors (IAIS) issued a consultative paper proposing an assessment methodology for Global Systemically Important
Insurers (G-SIIs), in which they adopted an indicator-based assessment approach consistent with the policy of theBasel Committee on Banking Supervision (IAIS, 2012b). The weight of each indicator for G-SIIs is as follows: size(5%),2 global activity (5%), interconnectedness (40%), non-traditional insurance and non-insurance activities (45%),and substitutability (5%). Higher evaluation weighting was given to interconnectedness as well as non-traditional
insurance and non-insurance activities.3
In July 2012, the IAIS released a policy paper entitled “Reinsurance and Financial Stability,” a sequel to its 2011
policy paper “Insurance and Financial Stability.” The paper addresses reinsurance-speciﬁc concerns and evaluates thereinsurance marketplace. It examines the relationship between reinsurance and ﬁnancial stability and, more speciﬁcally,
whether traditional reinsurance-related activities pose systemic risk.
“Reinsurance and Financial Stability” addresses reinsurance-speciﬁc concerns relating to market concentration rates,
risks arising from accumulations and high-value risks, and issues associated with alternative risk transfer (ART), which
include activities such as the underwriting of credit default swap (CDS) products. Traditional reinsurance is unlikely
to cause or amplify systemic risk, but the case may prove to be diﬀerent for non-reinsurance activities. In addition,although reinsurance establishes intra-sector connectivity, the mainly hierarchical structure of the insurance market
dampens any propagation of shocks.
First, we analyze the interconnectedness in the global reinsurance network using network indicators such as degrees
and centrality measures (“network analysis”). It is to be noted that reinsurers (including primary insurers engaged inreinsurance undertaking business) are dominant in the network.
Second, we conduct the model analysis of contagious defaults. For the analysis, we apply the Eisenberg–Noe framework (Eisenberg and Noe, 2001) to the global reinsurance network and set up the default mechanism (“default analysis”).
In this framework, defaults are classiﬁed into stand-alone defaults and contagious defaults, which are defaults that trigger
a domino eﬀect.4 Because contagious defaults can be caused in a speciﬁc setting, it is important to determine whether
this framework is suitable for the theoretical analysis using real-world data. Strictly speaking, this framework only∗ Corresponding author at:
Kanagawa University, 2946, Tsuchiya, Hiratsuka, Kanagawa, Japan 259-1293, E-mail address:
mkanno@kanagawa-u.ac.jp (M.Kanno).
1 In our study, they include both reinsurance companies and primary insurance companies who underwrite reinsurance.
2 The number shown in parentheses indicates the weight.
3 Using the IAIS assessment methodology and 2011 data, the FSB, in consultation with the IAIS and national authorities, has identiﬁed
an initial list of nine G-SIIs—Allianz, American International Group (AIG), Assicurazioni Generali, Aviva, Axa, MetLife, Ping An Insurance(Group) Company of China, Prudential Financial (the United States), and Prudential (the United Kingdom).
4 In the Eisenberg–Noe framework, multi-step defaulting events are not expressed.