Insurance and Interconnectedness in the Financial Services Industry

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TABLE 2 Principal components analysis of monthly portfolio returns portfolio for brokers, banks, FHCs, hedge funds, financial guarantee insurers, life insurance, accident and health insurers, property and casualty insurers, and other insurers PANEL A EIGENVALUES PANEL B EIGENVECTORS Percentage Variation Explained by Principal Component Sample Period PCA1 PCA2 PCA3 PCA4 1994 through 2010 63.48% 11.28% 8.46% 5.39% 1994 through 1999 69.48% 9.69% 6.32% 5.04% 2000 through 2004 62.32% 16.52% 6.51% 4.55% 2005 through 2008 66.17% 9.29% 7.9% 5.13% 2009 through 2010 76.11% 8.53% 5.78% 3.90% Eigenvectors corresponding to principal components Sample Period Portfolio PCA1 PCA2 PCA3 PCA4 1994 through 2010 Brokers 0.3299 0.3362 -‐0.2890 -‐0.3866 Banks 0.3791 -‐0.0499 -‐0.2940 -‐0.1159 Financial holding companies 0.3630 0.0487 -‐0.3570 -‐0.1245 Hedge funds 0.2053 0.8249 0.3288 0.1641 Financial guarantee insurers 0.3356 -‐0.1888 -‐0.3517 0.3731 Life insurers 0.3660 -‐0.0413 0.1072 -‐0.1051 Accident & health insurers 0.3282 -‐0.1963 0.5777 -‐0.3111 Property & casualty insurers 0.3256 -‐0.3480 0.3120 -‐0.1413 Other insurers 0.3365 -‐0.0678 0.1680 0.7264 1994 through 1999 Brokers 0.3319 0.1321 -‐0.4755 -‐0.2891 Banks 0.3689 -‐0.0317 -‐0.1922 -‐0.3572 Financial holding companies 0.3766 0.0526 -‐0.2044 -‐0.2401 Hedge funds 0.2345 0.7885 -‐0.0555 0.4356 Financial guarantee insurers 0.3478 -‐0.2593 0.2619 -‐0.0353 Life insurers 0.3704 -‐0.0282 -‐0.0335 0.0589 Accident & health insurers 0.3162 -‐0.2844 -‐0.1180 0.6807 Property & casualty insurers 0.3366 -‐0.3698 0.1604 0.1623 Other insurers 0.2925 0.2672 0.7634 -‐0.2167 2000 through 2004 Brokers 0.2385 0.5748 -‐0.4291 -‐0.0112 Banks 0.3847 0.0974 -‐0.2641 0.0726 Financial holding companies 0.3648 0.0046 -‐0.2667 0.5293 Hedge funds 0.0066 0.7445 0.4720 0.0013 Financial guarantee insurers 0.3741 -‐0.1356 -‐0.0155 -‐0.4780 Life insurers 0.3954 0.0202 0.0604 0.0095 Accident & health insurers 0.3276 -‐0.2208 0.4883 0.5430 Property & casualty insurers 0.3664 -‐0.1950 -‐0.1018 -‐0.2865 Other insurers 0.3522 0.0154 0.4467 -‐0.3300 22
Table 2, Panel B, continued Eigenvectors corresponding to principal components Sample Period Portfolio PCA1 PCA2 PCA3 PCA4 2005 through 2008 Brokers 0.3753 0.1234 0.0471 -‐0.3208 Banks 0.3471 -‐0.3834 -‐0.0797 -‐0.4877 Financial holding companies 0.3195 -‐0.3600 0.4450 -‐0.0757 Hedge funds 0.2606 0.6086 0.5709 -‐0.1420 Financial guarantee insurers 0.2964 -‐0.4555 0.2775 0.5207 Life insurers 0.3743 0.1993 -‐0.1246 0.0071 Accident & health insurers 0.3282 0.2916 -‐0.1619 0.5595 Property & casualty insurers 0.3277 0.0642 -‐0.5360 -‐0.1473 Other insurers 0.3544 -‐0.0372 -‐0.2478 0.1654 2009 through 2010 Brokers 0.3482 0.1128 -‐0.4129 0.1332 Banks 0.3713 -‐0.0815 -‐0.0504 0.0079 Financial holding companies 0.3460 0.2088 -‐0.3807 -‐0.2360 Hedge funds 0.2583 0.7077 0.3107 0.5382 Financial guarantee insurers 0.3410 -‐0.1404 -‐0.3504 -‐0.0670 Life insurers 0.3429 0.1694 0.2540 -‐0.5558 Accident & health insurers 0.3416 -‐0.0166 0.4694 -‐0.3098 Property & casualty insurers 0.3029 -‐0.5351 0.4069 0.2602 Other insurers 0.3348 -‐0.3181 -‐0.1112 0.3997 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. 23
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 and 22: REFERENCES Acharya, Viral V., Lasse
Page 23: TABLE 1 Principal Components Analys
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

Insurance and Interconnectedness in the Financial Services Industry

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