Our use of cookies

We use necessary cookies to make our site work (for example, to manage your session). We’d also like to use some non-essential cookies (including third-party cookies) to help us improve the site. By clicking ‘Accept recommended settings’ on this banner, you accept our use of optional cookies.

Necessary cookies Analytics cookies Yes Yes Yes No

Necessary cookies

Necessary cookies enable core functionality on our website such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Analytics cookies

We use analytics cookies so we can keep track of the number of visitors to various parts of the site and understand how our website is used. For more information on how these cookies work please see our Cookie policy.

Published on 23 January 2026

Staff Working Paper No. 1,168

By Somnath Chatterjee and David Humphry

The paper presents two risk-based capital frameworks for systemically important European life insurers by drawing a distinction between solvency risk and systemic risk. Solvency risk arises when the value of a life insurer’s assets falls below some threshold proportion of its liabilities. To assess solvency risk we implement the Merton-Vasicek portfolio credit risk model and determine capital adequacy of life insurers that correspond to a value-at-risk measure. We measure systemic risk as the expected capital shortfall of an insurer conditional on the overall European life insurance sector being in distress. Our results show that European life insurers have been growing in systemic risk exposure since 2007 and suggest that regulatory capital requirements should account for this. We also find evidence of interconnectedness between systemically important banks and insurance companies, as measured by the transmission of volatility shocks, which increased during periods of financial stress.

Solvency and systemic risk of European life insurers

Other staff working papers