Is the New Regulation Successful in Reducing Systemic Risk of Global Systemically Important Insurers? Empirical Evidence from Insurers around the Globe

In response to public awareness of the “too‐big‐to‐fail” problem that arose from the financial crisis in 2008, the G‐20 has explicitly expressed the need to tighten up supervision on global systemically important insurers (G‐SIIs) since November 2011, and the International Association of Insurance Supervisors (IAIS) has published a series of policy measures to supervise G‐SIIs since July 2013. With a panel dataset from 2007 to 2015, we analyze the effect of the new regulation on 173 international insurers from 33 countries. With G‐SIIs as the treated group and non‐G‐SIIs as the control group, we employ the difference‐in‐difference setting and find that the differ‐ence between the systemic risk of G‐SIIs and non‐G‐SIIs, which is measured by static MES and Δ CoVAR, decreased by approximately 37.8% to 60.0% after the G‐20 declaration and the IAIS’s publication of new policy measures. As the above systemic risk measures are restricted to tail‐dependence of stock returns and only reflect stock market participants’ perception of insurers’ systemic risk, we further analyze the changes of insurers’ characteristics and find that downsizing is an important channel for G‐SIIs to reduce their systemic importance. [Key words: systemic risk; global systemically important insurers; insurance regulation]