Systemic risk, interconnectedness, and non-core activities in Taiwan insurance industry

We employ three measures− marginal expected shortfall, SRISK index, and Conditional Value-at-Risk− to assess an insurer's exposure and contribution to systemic risk during the period 2005-2015. We then examine the primary factors posing the systemic risk and find that both non-core activities and interconnectedness of insurers are the significant and primary drivers. Our results differ from the findings in the U.S. insurance sector where firm size is the primary driver of insurers' exposure and contribution to systemic risk, as the findings in the global insurance sector where leverage is a significant driver of insurers' exposure, and both leverage and non-core activities are primary drivers of insurers' contribution to systemic risk. Our results further indicate that the size and significance of the interconnectedness effect on systemic risk increase as the share of insurance sector within the financial industry rises.