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At the start of Solvency II in January 2016, there is no overview of the insurance market in Europe. This paper develops a methodology to link various data sets on foreign branches and subsidiaries. The result is a new and comprehensive data set of cross-border insurance in Europe. We find that cross-border business in insurance is higher than in banking. We also find that the share of cross-border insurance has increased over the last decade, notwithstanding the global financial crisis. EIOPA, the European supervisory authority, plays a coordinating role among the national supervisors in the approval of internal models under Solvency II. Game theory suggests that there are limits to the coordination model. The increasing share of cross-border insurance, documented in this paper, may tilt the supervisory balance from coordination towards centralisation in an Insurance Union. [ABSTRACT FROM AUTHOR]

This paper explores whether the stationarity hypothesis of non-life insurance consumptions is supported during the period 1979–2005 for 31 countries. The stationarity of insurance consumption has important implications for modelling and forecasting insurance activities. On a global scale, this paper first implements the recent panel seemingly unrelated regressions augmented Dickey–Fuller unit root test, which allows us to account for possible cross-country effects and to identify how many and which countries of the panel contain a unit root. The main conclusion is that whether non-life insurance consumptions are stationary or not will be affected by different regions and their levels of development. Overall, our empirical results illustrate that non-life insurance consumptions in these countries are a mixture of stationary (integrated of order zero) and non-stationary (integrated of order one) processes. Higher risk aversion, lower income level and lower level of insurance market development may lead to non-stationarity. Finally, for the estimated half-lives of Africa, the degrees of mean reversion are greater than those for Europe and America. [ABSTRACT FROM AUTHOR]

European insurers who have to establish financial statements under IFRS must apply a temporary international accounting standard for insurance contracts which provides a flawed picture of their business. The IFRS long-term project for insurance is still under preparation by the IASB. The standard should not be issued until mid-2009 following a discussion paper to be submitted for comments in the first quarter 2007. The insurance industry has been involved for several years in a proactive way, including participation in the International Insurance Working group set up by the IASB. The European CFO Forum has proposed principles on which the international accounting standard for insurance should be based. The key elements are as follows: the insurance liabilities should be valued on a market consistent measurement including the management's best estimate of future cash flows discounted at a risk-free rate and a margin for risks and uncertainties; the profit should be recognized as the insurer is released from risks, and services are provided to the policyholders over the term of contracts and not at inception. Participating contracts liabilities should be based on an economic valuation. Liabilities should be reassessed at each closing. If applied, the CFO Forum‘s principles would have positive impacts for the investors and other users of the financial statements while entailing huge operational implications. The proposals from the European industry for accounting are closely linked to the proposals for Solvency II that the European Commission is preparing in the meantime: the measurement of the insurance liabilities proposed for both purposes by the CFO Forum, the CRO Forum and the CEA is the same. The American insurers members of the GNAIE and four Japanese Life Insurance groups have made similar propositions for accounting but with some differences that are under debate with the CFO Forum.The Geneva Papers (2007) 32, 62–74. doi:10.1057/palgrave.gpp.2510121 [ABSTRACT FROM AUTHOR]

We investigate cross-sector financial contagion over the period 2006-2014 for a sample of large European banks and insurers. We use CDS spreads and define contagion as correlation over and above what is explained by fundamental factors. Moreover, we assess the impact of different business models on contagion and the channels through which it spreads. We find that, for insurers, size and investment income raise contagion, while for banks capital adequacy, funding and income diversification are the most relevant factors. Furthermore, leverage is crucial in both sectors. We also provide evidence of the main risk transmission channels: the asset-holding and the guarantee channel for insurers and the additional collateral channel for banks. Our results offer new insight on how credit risk spillovers spread across sectors and call for further regulatory and supervisory effort in understanding if and where cross-industry similarities increase contagion risks. [ABSTRACT FROM AUTHOR]

The European insurance industry is awaiting the new EU-wide harmonised Solvency II framework. Before its introduction, it is important to find out which incentive effects can arise from it. Practitioners predict a trend towards consolidation in the insurance sector due to recognition of geographic diversification effects in Solvency II's standard formula. This paper studies whether the new European regulation standards will constitute a driver for mergers and acquisitions in the non-life insurance sector. We identify situations in which consolidation becomes profitable. Our results indicate that the Solvency II framework may lead to an enhanced geographic restructuring wave. However, the profitability of this restructuring depends strongly on the correct estimation of costs and the characteristics of the consolidation partner chosen. [ABSTRACT FROM AUTHOR]

The European insurance industry is among the largest institutional investors in Europe. Therefore, major reallocations in their investment portfolios due to the new risk-based economic capital requirements introduced by Solvency II would cause significant disruptions in European capital markets and corporate financing. This paper studies whether the new regulatory capital requirements for market risk are a binding constraint for European insurers by comparing the required market risk capital of the Solvency II standard model with the Standard & Poor's rating model for a fictitious, but representative, European-based life insurer. The results show that for a comparable level of confidence, the rating model requires 68 per cent more capital than the standard model for the same market risks. Hence, Solvency II seems not to be a binding capital constraint for market risk and thus would not significantly influence the insurance companies' investment strategies. [ABSTRACT FROM AUTHOR]

This paper looks at all the European and international organizations that have an influence on insurance companies' regulatory environment.The Geneva Papers (2005) 30, 19–28. doi:10.1057/palgrave.gpp.2510014 [ABSTRACT FROM AUTHOR]

While some consider open insurance to be a buzzword with more hype than substance, the underlying trend of open finance stimulates insurers to use digital technology to exchange data with third parties to realise process efficiencies and develop new products and channels. Based on a literature review and 30 interviews with industry experts in Europe, we define open insurance, identify its key drivers, and discuss the dimensions and performance impact of open insurance strategy. The combined insights can help executives develop a better understanding of open insurance and formulate an open insurance strategy that provides performance benefits to them, customers, and third parties. [ABSTRACT FROM AUTHOR]

In light of the upcoming Solvency II Pillar 3 disclosure regulation for the insurance industry, this paper explores the risk disclosure practices in annual reports of European primary insurers in the Dow Jones Stoxx 600 Insurance Index between 2005 and 2009. On the basis of a self-constructed risk disclosure index, the study examines the relation between the extent of risk disclosure and insurance companies' characteristics such as size, risk, profitability, ownership dispersion, cross-listing, home country and type of insurance sold, to draw inferences regarding motives for enhanced risk disclosure based on positive accounting theory. [ABSTRACT FROM AUTHOR]

The author describes the reputation of the insurance industry in Europe from an investor's angle. In the first part, he argues that the industry has suffered from a bad reputation in recent years, driven by “negative” events such as WTC, pension mis-selling or the U.S. Spitzer investigations. A changing framework, such as Solvency II, and the industry's increased awareness of the importance of reputation contribute to a better picture for the industry. The author elaborates on a changing industry from different stakeholder viewpoints. In the second part, he explains the results of a small survey conducted among 10 major European investors in insurance stocks. The main finding is that investors' valuation models do not explicitly deal with reputation. However, reputation does matter for investment decisions and the main factors influencing reputation from an investor's angle are “management” and “communication”.The Geneva Papers (2006) 31, 454–469. doi:10.1057/palgrave.gpp.2510094 [ABSTRACT FROM AUTHOR]

This study discusses the operational benefits of integration of the banking and insurance sub-sectors in Europe to formulate policy recommendations for the bancassurance markets in an emerging country, China. When the financial integration of banking and insurance services began in European countries in the 1990s, most banks and insurance companies had already been listed for some time. Thus, we use the monthly stock returns of banks and insurance companies that had not yet been integrated as of 2008 to examine efficient frontier portfolio and pairwise combinations in European bancassurance markets. We find that portfolio diversification is an important benefit of banks integrating with different types of insurance companies. Consistent with the literature, we further show that banks strategically involved in non-life insurance will benefit in terms of enhanced returns and reduced risks. Our results present implications for building a bancassurance market in China. [ABSTRACT FROM AUTHOR]

Although catastrophe bonds are continuing to gain importance in today's risk transfer and capital markets, little is known about the decision-making processes that drive the demand for this aspiring asset class. In the article at hand, we focus on one segment of the investor community. Our research goal is to identify major determinants of the cat bond investment decision of insurance and reinsurance companies. For this purpose, we have conducted a comprehensive survey among senior executives in the European insurance industry. Evaluating the resulting data set by means of exploratory factor analysis and logistic regression methodology, we are able to show that the expertise and experience with regard to cat bonds, the perceived fit of the instrument with the prevailing asset and liability management strategy, as well as the applicable regulatory regime are significant drivers of an insurer's propensity to invest. These statistical findings are supported by further qualitative survey results and additional information from structured interviews with the managers of four large dedicated cat bond funds. [ABSTRACT FROM AUTHOR]

This article investigates the current discussion on the regulatory framework for credit rating agencies (CRAs) from the perspective of the insurance industry, focusing on the European Union. It becomes apparent that the new European system of regulation and supervision of CRAs conforms well to general principles of economic theory and can be expected to resolve many issues of concern. In contrast, some of the additional policy options currently discussed in Europe could involve substantial costs and risks for market participants and the financial system without contributing further to the objectives of CRA reform. [ABSTRACT FROM AUTHOR]

The process of the European insurance companies' solvency reform has entered into an extremely active phase. The European Commission drafted a Framework to guide the process, which it amended over the summer of 2005. In parallel with the release of this Framework, the Commission launched three waves of consultations. To understand what is at stake with this reform, it is useful to begin by reviewing the reasons that led the Commission to initiate Solvency II in the first place, upon completion of Solvency I, and the conditions under which the process should be conducted. Then, we will turn to the principal orientations of the reform, with particular emphasis on six of them. Finally, we discuss seven of the most salient economic and financial issues at this point in the discussion. The fact that the Commission's work was not preceded by in-depth technical work, as was the case for the Basel Committee when it undertook banking solvency reform, gives us some idea of the magnitude of the task facing the Commission, which must not only invent new legislation better adapted to the realities of the European insurance industry, but also resolve a number of technical, economic and financial matters for which little or no consensus exists today. [ABSTRACT FROM AUTHOR]

Examines the efficiency of European specialist and composite insurers transacting long-term insurance business. Focus on measures of value-based efficiency and mix efficiency; Overview of efficiency and measurement; Use of Data Envelopment Analysis to generate efficiency measures; International differences among several European countries.

Examines the consequences for the legal approval of mergers of European insurance undertakings that result from the liberalization of market entry and deregulation of supervisory legislation. Delineation of insurance markets according to the European Commission's decision-making practice; Criteria for the determination of potential competition.

Offers a look at the insurance industry in the European financial services market. Background on the main forces at work in the European financial services market; Effect on competitors in terms of strategies, products, access to customers, risk profiles and executional capabilities; Trends in the financial services; Implications of the trends on the insurance industry and companies.