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Growing Risk in the Insurance Sector

Growing Risk in the Insurance Sector - Developing risk in the life insurance industry requires prudent policy response to prevent broader economic damage. Ralph S. J. Koijen – London Business School, Motohiro Yogo - Monetary Advisor. Published March 24, 2014

“The financial crisis of 2008 exposed important vulnerabilities in the banking sector. In its aftermath, considerable academic effort has been devoted to better understanding banking risks, and policymakers around the world are developing new regulations to contain those risks. Our recent and ongoing work shows that there are also important risks in the insurance sector. Although these risks have been growing rapidly over the past 15 years, they have received relatively little attention from academics and regulators. If unaddressed, these risks could cause severe problems. Insurance is a large share of the financial sector. For example, U.S. life insurance liabilities amounted to $4.1 trillion in 2012, compared to $7 trillion in U.S. savings deposits. Moreover, as the largest institutional investors in the corporate bond market, insurance companies serve an important role in real investment and economic activity.”

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