Consolidation and systemic risk in the international insurance industry

• Mergers in the insurance sector are positively correlated with moderate systemic risk.
• Extreme systemic risk does not increase following insurance mergers.
• Firm size adds to the destabilizing effect of insurance mergers.
• Non-traditional financing activities increase moderate systemic risk.
• Diversification across insurance lines increases moderate systemic risk.

This paper is the first to examine the effects of consolidation in the international insurance industry on the acquirers’ contribution to systemic risk. We analyze a sample of 394 international domestic and cross-border mergers and find a strong positive relation between consolidation in the insurance industry and moderate systemic risk in the insurance and banking sector. Furthermore, we find strong empirical evidence in support of hypotheses that firm size, non-traditional financing activities, and diversification across insurance lines all add to the destabilizing effect of insurance consolidation.