The nature and determinants of disclosure practices in the insurance industry: Evidence from European insurers

Abstract

Filling a gap in the existing literature on disclosure practices by insurance companies, this research provides new empirical evidence on the nature and determinants of disclosure practices in the European insurance industry over the 2005-2010 period. The main results show that insurers are more inclined to invest in the quantity of risk information rather than in the disclosure quality of the entire annual report, as risk information is addressed to high-level financially educated people and requires fewer resources than are needed for an investment in quality. Further, the analysis also shows that insurer level characteristics, in terms of size and technical provisions, as well as country level variables, significantly affect the amount of risk information disclosed. In the years affected by the financial crisis, the level of risk disclosure quantity increases as insurers use disclosure as a tool to reassure stakeholders on their independence from the global financial crisis

The effectiveness of risk disclosure practices in the European insurance industry

“…The amount of information disclosed by companies in their annual reports is usually measured in the existing literature through the construction of a disclosure index. This requires identifying a set of relevant information, testing its presence in the disclosure tools identified, and assigning a score based on the amount of information provided (Botosan, 1997;Ho and Wong, 2003;Baumann and Nier, 2004;Perignon and Smith, 2010;Höring and Gründl, 2011;Elshandidy et al, 2013;Malafronte et al, 2016).…”

“…Insurers' disclosure practices are measured using a risk disclosure index for insurers built following the best practices suggested by the literature (Höring and Gründl, 2011;Malafronte et al, 2016). Tables Ia and Ib report definition, source and descriptive statistics of the variables used in the analysis.…”

“…We follow the relevant literature (Malafronte et al, 2016) Each item takes a dummy value equal to one if it is disclosed, otherwise it takes a value of 0. Items numbered 3,4,8,12,16,20,24,29, take value equal to one if disclosed in a basic way, 2 if disclosed in an extensive way, 0 if not disclosed.…”

“…The amount of information disclosed by companies in their annual reports is usually measured in the existing literature through the construction of a disclosure index. This requires identifying a set of relevant information, testing its presence in the disclosure tools identified, and assigning a score based on the amount of information provided (Botosan, 1997;Ho and Wong, 2003;Baumann and Nier, 2004;Perignon and Smith, 2010;Höring and Gründl, 2011;Elshandidy et al, 2013;Malafronte et al, 2016).Part of the literature focuses on specific items, such as risk disclosure practices, based on the consideration that investors need to understand the risks a company takes and desire information on the sustainability of value creation strategies (Cabedo and Tirado, 2004;Lajili and Zeghal, 2005;Linsley and Shrives, 2005;Starita and Malafronte, 2014). While it is important to implement risk management systems, it is equally important to communicate effectively on the risks faced and the plans to seize opportunities and minimize the risk of failure (Beretta and Bozzolan, 2004).…”

Technical reserves in insurance and Slovak insurance market

“…Published papers are addressing the topic at many circuits and partial questions. One factor that affects the calculation of technical provisions is an assessment of the risk, which is a very complex problem [3][4][5] Expedient are analysis, evaluation and reports on regional and national levels that explain the specifics of a particular insu rance sector [6][7][8][9][10]. The attention is paid at the application of mathematical and statistical methods and modelling in order to apply procedures that allow implementing processes which take into account all the elements for the calculation [10][11][12].…”