Systemic Risk Spillovers Between the Insurance and Banking Sectors in Nigeria: A Network Econometrics Approach

This study examines systemic risk spillovers between the insurance and banking sectors in Nigeria using network econometrics methods, contributing original evidence on the cross-sector systemic risk dynamics in a major African economy. The interconnectedness of insurance and banking through investment portfolios, bancassurance distribution, group corporate structures, and shared macroeconomic exposures creates channels for systemic risk transmission that have not been rigorously quantified in the Nigerian context. This study constructs a financial sector network for Nigeria comprising all listed insurance companies and commercial banks on the Nigerian Exchange Group from 2012 to 2023. Bilateral systemic risk exposure is measured using stock return spillovers estimated through the Diebold-Yilmaz connectedness framework and tail risk co-movements measured by Delta CoVaR. Network topology metrics including degree centrality, betweenness, and system-wide connectedness are tracked over time to identify periods of elevated cross-sector contagion risk. Findings reveal significant and time-varying systemic risk spillovers between the insurance and banking sectors, with the direction of contagion shifting from banking-to-insurance dominance during the 2014 to 2016 oil price crisis to insurance-to-banking dominance during the 2020 COVID shock, reflecting changing balance sheet vulnerability profiles. Several insurance-bank group structures are identified as systemically important cross-sector contagion nodes. The study contributes an original Nigerian cross-sector systemic risk network and dynamic contagion measurement methodology, recommending coordinated CBN-NAICOM supervisory oversight of systemically important financial conglomerates.

Keywords: systemic risk, network econometrics, insurance-banking nexus, contagion, Nigeria.