Paper: arXiv 2505.02635

Authors: Giovanni Bonaccolto, Nicola Borri, Andrea Consiglio, Giorgio Di Giorgio

Abstract

This paper investigates the dynamic interdependencies between the European insurance sector and key financial markets-equity, bond, and banking-by extending the Generalized Forecast Error Variance Decomposition framework to a broad set of performance and risk indicators. Our empirical analysis, based on a comprehensive dataset spanning January 2000 to October 2024, shows that the insurance market is not a passive receiver of external shocks but an active contributor in the propagation of systemic risk, particularly during periods of financial stress such as the subprime crisis, the European sovereign debt crisis, and the COVID-19 pandemic. Significant heterogeneity is observed across subsectors, with diversified multiline insurers and reinsurance playing key roles in shock transmission. Moreover, our granular company-level analysis reveals clusters of systemically central insurance companies, underscoring the presence of a core group that consistently exhibits high interconnectivity and influence in risk propagation.

Complexity vs Empirical Score

  • Math Complexity: 7.0/10
  • Empirical Rigor: 8.0/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper employs advanced econometric methods like Generalized Forecast Error Variance Decomposition and CAViaR/CARES models, indicating high mathematical sophistication, while the extensive dataset (2000-2024) with subsector and company-level analysis demonstrates strong empirical implementation.

Research Flowchart

  flowchart TD
  A["Research Goal: Quantify systemic risk<br> & interdependencies in European Insurance"] --> B["Method: Generalized Forecast Error<br>Variance Decomposition GFEVD"]
  B --> C["Data: Jan 2000 - Oct 2024<br>Equity, Bond, Banking, Insurance Indicators"]
  C --> D["Computational Analysis"]
  D --> E{"Key Findings"}
  
  E --> F["Insurance sector is active in<br>systemic risk propagation"]
  E --> G["Heterogeneity across subsectors:<br>Diversified & Reinsurers key"]
  E --> H["Company-level clusters identified:<br>Core group of systemic insurers"]
  
  style A fill:#e1f5fe
  style B fill:#f3e5f5
  style C fill:#e8f5e8
  style D fill:#fff3e0
  style E fill:#fce4ec

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