Tail-risk interconnectedness in the Chinese insurance sector

Abstract

We investigate tail-risk interconnectedness in the Chinese insurance sector by proposing downside and upside tail-risk spillover networks before and after the onset of the COVID-19 pandemic. The constructed networks allow us to capture marginal tail losses and time-varying tail-risk spillover effects. To identify the tail-risk transmission mechanism, we analyze network metrics. We find that tail-risk interconnectedness increased after the pandemic, showing that the risk level of the insurance sector has risen. Moreover, we use predictive panel regressions to investigate the impact of COVID-19 on tail-risk interconnectedness. We find that insurers’ size, liability-to-asset ratio, equity ratio, and book value per share are common factors that affect downside and upside tail-risk interconnectedness.