Are insurers SIFIs? A MGARCH model to measure interconnectedness

Abstract

We examine whether insurance companies should, like banks, be regulated as Systemically Important Financial Institutions (SIFIs). For this purpose, we empirically model the interconnectedness between different sectors of the financial system with a multivariate GARCH model using the information content of Credit Default Swap (CDS) prices. Our findings suggest that large insurers transmit risks to other parts of the financial system. The magnitude of these contagion effects is substantially lower than those of large banks that are currently treated as SIFIs.