The age of interconnected risks

Swiss Re Institute and the London School of Economics and Political Science (LSE) are collaborating to advance understanding of systemic risk and its implications for the financial system and wider economy. The partnership brings together Swiss Re’s expertise in risk, insurance and resilience with LSE’s academic research and perspectives to examine how complex and interconnected risks can develop, interact and affect economies and societies.

At the heart of the collaboration is a jointly developed report on systemic risk, drawing on research and expertise from both organisations. The partnership will also bring experts and stakeholders together for a dedicated Systemic Risk Day, creating an opportunity to explore the report’s findings, discuss the implications of increasingly complex and interconnected risks, identify amplifiers and discuss ways to improve the resilience of the financial system. Together, the research and event aim to contribute to a broader dialogue on how systemic risks can be better understood and addressed.

Swiss Re Institute harnesses Swiss Re's risk knowledge to produce data-driven research across the company and with partner organisations. We foster knowledge sharing and support decision-making with our industry-focused publications, client programmes and conferences.

The London School of Economics and Political Science (LSE) is a world-leading specialist social science university, founded by social reformers in 1895 for "the betterment of society". Today, the School is regularly ranked the top university in London and a top university for research quality and impact.

LSE was awarded University of the Year 2025 and ranked top in the UK for 2025 and 2026 by The Times and Sunday Times Good University Guide.

The Financial Markets Group (FMG) at the London School of Economics and Political Science (LSE) is a leading research centre focused on financial markets and their interaction with the wider economy. It brings together academics, policymakers and market practitioners to advance research and debate on financial markets, financial stability and systemic risk.

Within the collaboration with Swiss Re Institute, FMG provides academic expertise on systemic risk and contributes to the joint research and dialogue around how shocks can emerge and propagate through increasingly interconnected financial and economic systems.

The Systemic Risk Centre (SRC) at the London School of Economics and Political Science (LSE) conducts interdisciplinary research into systemic risk and the mechanisms through which shocks can spread across interconnected financial, economic and wider systems. Its research seeks to improve understanding of systemic vulnerabilities and how resilience to major shocks can be strengthened.

The global risk landscape is becoming more interconnected. Financial pressures, artificial intelligence (AI), geopolitical tensions, natural catastrophes, demographic change and growing dependence on critical infrastructure are increasingly interacting. This is creating new pathways through which an initial shock can spread across economies and financial systems.

New research from Swiss Re Institute and the London School of Economics and Political Science (LSE) examines what these connections mean for systemic resilience, building on previous research to assess how risks can accumulate, interact and reinforce one another.

The report identifies four closely connected areas of systemic risk: the financial system, the digital ecosystem, natural hazards and the wider socio-economic environment. Its central finding is that the severity of a future crisis may depend less on the size of the initial shock than on how it propagates through interconnected systems, and on their capacity to absorb, distribute and recover from shocks.

Swiss Re Institute's analysis of risk disclosures from 91 large US-based multinational companies shows how corporate risk concerns have shifted since COVID-19. AI and new technology, climate change and social instability are now concerns for a much broader range of companies. The average number of connections between risks identified in corporate disclosures has increased by 24% since 2019.

At the same time, concentration is creating potential single points of failure and correlated exposures. For example, three companies controlled 70% of global cloud infrastructure in 2024, while 88% of Taiwan's semiconductor plants are located in areas of extreme seismic risk. Disruption at one critical node can therefore have consequences far beyond the company, sector or location initially affected.

Natural catastrophes illustrate the risk. Rising exposure is already the main driver of growing insured natural catastrophe losses. But physical damage can take on systemic significance when a catastrophe affects infrastructure on which many other parts of the economy depend. A major event affecting a data centre, power network or semiconductor hub could disrupt businesses and supply chains while generating losses across multiple insurance lines.

Digitalisation can further accelerate these connections. Financial transactions can now happen almost instantaneously, while AI-supported decision-making could make market reactions faster and more synchronised. However, AI also offers considerable potential to improve productivity and economic growth – strengthening economies' ability to manage other structural challenges.

The report argues that greater interconnectedness does not inevitably mean greater instability. What matters is whether systems can absorb, distribute and recover from shocks. 

Building that resilience requires moving beyond assessing risks individually. Businesses and policymakers need a clearer understanding of critical dependencies: where infrastructure, suppliers, technology providers, financial institutions or other assets have become highly concentrated, and what could happen if a critical node fails.

Scenario analysis and stress testing can help reveal these connections before a crisis occurs. Diversifying suppliers, technology platforms and other critical dependencies can reduce single points of failure. Governments can strengthen fiscal buffers and risk-financing capacity in good times, improving their ability to respond when shocks occur.

This is particularly important because some traditional shock absorbers are under pressure. High government debt, ageing populations and weaker productivity growth are constraining public finances in many advanced economies. Geopolitical fragmentation can also make coordinated international responses more difficult.

Greater resilience therefore requires action across the public and private sectors, including preserving mechanisms that allow risks to be shared rather than leaving losses concentrated where they first occur.

For re/insurers, an increasingly interconnected risk landscape creates new challenges, while also reinforcing their role in building resilience.

First, understanding accumulation becomes more important. Risks that appear separate may be connected through the same infrastructure, technology provider, supply chain or financial system. Re/insurers need to assess these dependencies alongside individual exposures, using scenario analysis, modelling and stress testing to identify where losses could accumulate across sectors and lines of business.

Second, risk expertise can help strengthen resilience before losses occur. Through underwriting, risk modelling and engineering expertise, re/insurers can identify and price concentrations, creating incentives to reduce vulnerabilities and invest in resilience.

Third, risk transfer itself is an important source of systemic resilience. Reinsurance pools and diversifies risks across companies, sectors and geographies, helping economies absorb shocks rather than leaving losses concentrated where they occur. Insurance-linked securities can provide additional risk-bearing capacity, while public-private partnerships can help address systemic risks that exceed private-sector risk-bearing capacity. As fiscal constraints limit governments' ability to absorb future shocks, preserving and expanding risk-transfer capacity will become increasingly important. Open capital markets and cross-border reinsurance support global diversification and help ensure capital can be deployed where protection is most needed.

The objective is not to eliminate interconnectedness – modern economies depend on it – but rather to understand where connections create vulnerabilities, to reduce excessive concentrations, and to ensure systems can absorb shocks rather than amplify them.