Designing a Countercyclical Insurance Program for Systemic Risk

Phelim Boyle, Joseph H.T. Kim

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This article proposes a framework for measuring and managing systemic risk. Current solvency regulations have been criticized for their focus on individual firms rather than the system as a whole. We show how an insurance program can be designed to deal with systemic risk through a risk charge on participating institutions. The risk charge is based on the generalized co-conditional tail expectation, a conditional risk measure adapted from conditional value-at-risk. Current regulations have been criticized on the grounds that their capital requirements are procyclical. They require extra capital in periods of extreme stress thus exacerbating a crisis. We show how to construct a countercyclical risk charge and illustrate the approach using a numerical example.

Original languageEnglish
Pages (from-to)963-993
Number of pages31
JournalJournal of Risk and Insurance
Volume79
Issue number4
DOIs
Publication statusPublished - 2012 Dec 1

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All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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