According to empirical evidence of reported losses, insurance firms are interconnected in a non-trivial way. As a result, systemic risk is a real possibility and can be viewed as the result of a cascading process. The systemic role of individual firms, both in terms of triggering a cascade or being affected by one, is established based on two novel indices: the Criticality IDX and the Sensitivity IDX, respectively.
This article was published by The Actuarial Association.
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