Comparison of Stakeholder Perspectives on Current Regulatory and Reporting Reforms

Abstract

In the European insurance industry, regulatory and reporting frameworks are currently subject to far-reaching reforms. We focus on four of these frameworks, namely the Solvency II framework, insurance guaranty systems, the proposed IFRS 4 Phase II international accounting standards, and Market Consistent Embedded Value reporting. We present these frameworks, analyze them from the insurance company's management, investors, and policyholder perspectives, and compare them. Our analysis implies that the four frameworks need to be considered jointly, due to various interrelations and interactions. We argue that a coordinated introduction will be necessary to ensure that the regulatory burden is reduced and synergies can be utilized in the event of all four frameworks being implemented as planned. Furthermore, we analyze the challenges of a holistic, comprehensive approach to insurance reporting and regulation and its implementation in order to achieve the goals set by the frameworks.

Regulations, profitability, and risk-adjusted returns of European insurers: An empirical investigation

“…extensively researched, as is the case with banking, with existing work rarely using non-U.S. data (Eling, 2012). 13,14 Wagner and Zemp (2012) argue that the publication of the same risk-based economic information for all insurance companies provides opportunities for management to benchmark its own indicators of economic performance, as well as to set the firm apart from competitors. Requirements for increased disclosures can also negatively affect profitability, however, as a result of direct costs of making additional disclosures, maintaining investor relations departments, additional time and effort to prepare formal disclosure documents, and the release of sensitive information to competitors (Duarte et al, 2008).…”

“…7 Despite the general belief that more-stringent capital requirements will improve the well-being of insurers, the effect of such requirements is actually ambiguous. For example, various recent reports mention that capital requirements under Solvency II in Europe could force insurance managers to alter their asset allocation, redesign products, reduce capacity, change the prices of insurance products, or even withdraw from certain insurance sectors (see, e.g., Wagner and Zemp, 2012;KPMG, 2011). Apparently, such actions will affect their performance.…”

Earnings Persistence and Market Reaction to Earnings in the International Insurance Industry

“…The accounting system applied to insurers is historically based on statutory accounting principles (SAP) primarily for measuring and monitoring solvency (BarNiv, 1990), since the insurance industry is a strongly regulated activity across the world (Harrington, 2009). However, Wagner and Zemp (2012) argue that regulatory framework (solvency and insurance guaranty schemes) and accounting standards need to be considered jointly, due to various interrelations and interactions.…”

“…Hence, understanding the pattern of accounting earnings and operating cash flows is relevant to forecast future economic outcomes in prudential supervision (Wagner & Zemp, 2012), to assess the capacity to assume additional risks (Chambers, Freeman, & Koch, 2005), and to assess the performance drivers of insurance companies (Dechow, Ge, & Schrand, 2010). Nevertheless, the empirical evidence on accounting information in the insurance industry is scarce, especially when focusing on stock/market valuation and investors, analysts, and portfolio managers' decision.…”

New Solvency Regulation: What CEOs of Insurance Companies Think

“…I.VW-HSG/Accenture 31 reports that the perceived dynamics of change in the German-speaking insurance sector are determined primarily by the external factor of regulation: "tougher regulations on the ability to assume risk and on transparency 25 An overview, critical analysis and comparative assessment of the principles of insurance regulation with a focus on Solvency II, the SST and the United States' risk-based capital standards can be found, for example, in Eling et al (2007); Eling and Holzmu¨ller (2008);Doff (2008);Holzmu¨ller (2009) andKlein (2012). 26 European Commission (2010); Wagner and Zemp (2012). 27 An insurer's failure to meet its MCR will be subject to immediate regulatory intervention.…”