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The designation of insurance companies as Systemically Important Financial Institutions (SIFI) explicitly considers the potential for the interconnectedness of their portfolios to affect the asset liquidation channel of systemic risk transmission. In this paper, we study the determinants and effects of interconnectedness on the selling behaviour of insurers using cosine similarity.

We document that greater portfolio similarity between two insurers is significantly related to the similarity in insurers’ asset liquidation decisions. This relationship is stronger when both insurers are capital constrained but only at the asset class level suggesting that correlated re-balancing to improve capital ratios occurs at a higher level than individual securities.

We find that the relationship between the portfolio holdings of both illiquid securities and downgraded issuers and sales similarity is greater during the financial crisis. In addition, we show that portfolio similarity cannot be explained by easily observable characteristics such as return correlation, concentration or assets under management. We interpret our findings to mean that the co-investment decisions of insurers under many different economic conditions are an important determinant of selling behaviour. Overall, our paper provides an implementable mechanism to identify and monitor the interconnectedness of insurance company portfolios.