The rising interconnectedness of the insurance sector

Abstract

This paper examines the long-term evolution of the linkages of the insurance sector with financial and nonfinancial companies. We develop a measure of connectedness using a multifactor model of weekly equity returns. The empirical analysis is conducted from 1973 to 2018, for 16 developed countries, at both the sectoral and institution levels. The results indicate that, unlike other sectors, the connectedness level of the insurance industry has strengthened over time. We also find that the linkages of the largest insurance companies with financial and nonfinancial firms are structurally different but as high as those of the largest banks.