Modeling the dependence structure and systemic risk of all listed insurance companies in the Chinese insurance market

AbstractAs a developing country, China's insurance market is already the second largest insurance market in the world, and its development is inseparable from the comprehensive development of insurance companies' business. At present, insurance companies are engaged in both traditional and nontraditional insurance businesses. Thus, to avoid extreme financial events, the insurance market requires more risk management. Hence, examining systemic risk in the insurance market in China is an interesting research topic. This paper studies the comovement between all listed insurance companies and the insurance market in China by modeling the average and extreme dependence structure using different copula specifications. Furthermore, it analyzes both downside and upside risk spillover effects from insurance companies to the insurance market by quantifying the following three market risk measures: the value‐at‐risk (VaR), the conditional VaR (CoVaR) and the delta CoVaR (ΔCoVaR). Finally, we test the significance of risk spillover effects and provide a formal ranking of the listed insurance companies with respect to their contribution to both the downside and upside systemic risk of the insurance market.