Why do some insurers become systemically relevant?

•Several U.S. insurers contributed significantly to the financial crisis.•Systemic risk exposure was driven by size and non-policyholder liabilities.•Higher investment income was associated with a higher exposure to systemic risk.•An insurer's contribution to systemic risk is only driven by firm size.•Substitutability and global activity do not predict the systemic risk of insurers.

Are some insurers relevant for the stability of the financial system? And if yes, what firm fundamentals and aspects of insurers’ business models cause them to destabilize an entire financial sector? We find that several insurers did indeed contribute significantly to the instability of the U.S. financial sector during the recent financial crisis. We empirically confirm that insurers that were most exposed to systemic risk were on average larger, relied more heavily on non-policyholder liabilities and had higher ratios of investment income to net revenues. Contrary to current conjectures of insurance regulators, we find that the contribution of insurers to systemic risk is only driven by insurer size.