Insurance and Interconnectedness in the Financial Services Industry

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TABLE 1 Principal Components Analysis of Monthly Return Portfolios for Brokers, Banks, Financial Holding Companies, Hedge Funds, Insurers PANEL A EIGENVALUES PANEL B EIGENVECTORS Percentage Variation Explained by Principal Component Sample Period PCA1 PCA2 PCA3 PCA4 1994 through 2010 70.84% 15.80% 5.93% 5.01% 1994 through 1999 75.88% 13.47% 6.10% 3.93% 2000 through 2004 59.88% 26.38% 5.63% 5.39% 2005 through 2008 73.09% 14.37% 7.06% 3.85% 2009 through 2010 80.49% 10.46% 5.93% 2.14% Eigenvectors corresponding to principal components Sample Period Portfolio PCA1 PCA2 PCA3 PCA4 1994 through 2010 Brokers 0.4660 0.1491 -‐0.7919 0.2960 Banks 0.4919 -‐0.2688 -‐0.0310 -‐0.1304 FHCs 0.4806 -‐0.1708 0.1045 -‐0.7214 Hedge Funds 0.3111 0.8911 0.3090 -‐0.0303 Insurers 0.4616 -‐0.2868 0.5153 0.6116 1994 through 1999 Brokers 0.4526 -‐0.0248 -‐0.7840 0.4223 Banks 0.4846 -‐0.2412 0.0303 -‐0.5361 FHCs 0.4977 -‐0.1190 0.0349 -‐0.4069 Hedge Funds 0.3303 0.9262 0.1611 -‐0.0082 Insurers 0.4511 -‐0.2630 0.5977 0.6071 2000 through 2004 Brokers 0.4290 0.4654 -‐0.6932 -‐0.2987 Banks 0.5469 -‐0.0848 0.0752 0.0008 FHCs 0.5141 -‐0.1658 0.5291 -‐0.5154 Hedge Funds 0.0781 0.8232 0.4719 0.3056 Insurers 0.4965 -‐0.2665 -‐0.1059 0.7428 2005 through 2008 Brokers 0.4911 0.0910 -‐0.4099 0.2294 Banks 0.4530 -‐0.4783 -‐0.2071 0.5021 FHCs 0.4364 -‐0.3106 0.8032 -‐0.1164 Hedge Funds 0.3635 0.8160 0.2383 0.2463 Insurers 0.4807 0.0226 -‐0.2954 -‐0.7881 2009 through 2010 Brokers 0.4673 -‐0.1143 -‐0.4478 -‐0.6832 Banks 0.4788 -‐0.2515 0.1880 -‐0.1309 FHCs 0.4624 -‐0.1101 -‐0.5173 0.7079 Hedge Funds 0.3708 0.9190 0.1288 -‐0.0014 Insurers 0.4485 -‐0.2588 0.6927 0.1228 Note: PCA indicates a principal component, indicates as PCA1, PCA2, PCA3 and PCA4, in order of importance in explaining the variation of monthly portfolio returns. 21
Page 1 and 2: Insurance and Interconnectedness in
Page 3 and 4: Insurance and Interconnectedness in
Page 5 and 6: elationships with banks and expansi
Page 7 and 8: Life insurers **************** Inse
Page 9 and 10: Financial guarantee insurers Financ
Page 11 and 12: • Within the insurance industry,
Page 13 and 14: ! !
Page 15 and 16: are considered significant (Tabachn
Page 17 and 18: We graph the first two principal co
Page 19 and 20: directionality is reversed in the c
Page 21: REFERENCES Acharya, Viral V., Lasse
Page 25 and 26: Table 2, Panel B, continued Eigenve
Page 27 and 28: TABLE 3, CONTINUED PANEL E PROPERTY
Page 29 and 30: TABLE 4, CONTINUED PANEL E PROPERTY
Page 31 and 32: FIGURE 2 Proportion of insurance as
Page 33 and 34: FIGURE 4 Principal components analy
Page 35: FIGURE 6 Variation explained by pri

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