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Economics Research International
Volume 2012 (2012), Article ID 525089, 8 pages
http://dx.doi.org/10.1155/2012/525089
Research Article

Insurance and Banking Interconnectedness in Europe: The Opinion of Equity Markets

Financial Stability Unit, European Insurance and Occupational Pensions Authority, Westhafenplatz 1, 60327 Frankfurt am Main, Germany

Received 26 March 2012; Accepted 29 June 2012

Academic Editor: Perry Sadorsky

Copyright © 2012 Ken Nyholm. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Conditional expected shortfalls calculated for European insurance companies and banks under stressed market conditions are shown to be of similar magnitudes. Measured at 95% and 99% stress levels, on data covering the period from 1995 to 2011, the equity-return tail losses of insurance undertakings and banks are indistinguishable. Granger causality analysis, on all pairs of banks and insurance companies included in the sample, shows that banks and insurance companies have equal propensity to cause each others price movements. Even though the business model of insurance undertakings is different from the business model typically applied by banks, and even though insurance companies are not depending to a similar degree on short term funding as banks, the empirical results indicate that the financial equity markets in Europe do not differentiate their trading of banks and insurance companies in periods of stress.