Twin Peaks for Europe: State-of-the-Art Financial Supervisory Consolidation

Erdélyi, Olivia Johanna

doi:10.1007/978-3-319-30707-7

Cited by 3 publications

(3 citation statements)

References 19 publications

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“…The Solvency I ratio has serious shortcomings (e.g., Erdélyi, 2016;European Commission, 2007;Linder & Ronkainen, 2004;Rae et al, 2018;Van Bragt et al, 2010). The ratio is volume-based rather than risk-based.…”

Section: Solvency Announcements and Information Contentmentioning

confidence: 99%

“…Moreover, it also does not reveal important information related to valuation since valuation requires information about future dividend paying capacity and free capital. Although dividend payouts may be contingent on a minimum solvency ratio, Erdélyi (2016) finds that the Solvency I directive yielded (in many cases) capital requirements that were too low and almost all insurers were overcapitalized so that a drop in solvency would not automatically lead to a reduction in dividends. Moreover, the information provided was not necessarily comparable across firms because the Solvency I directive allowed the valuation of assets and liabilities to be based on either book value or market value.…”

Section: Solvency Announcements and Information Contentmentioning

confidence: 99%

“…This Europeanwide framework is codified in the so-called Solvency II Framework Directive 2009/138/EC, approved in 2009, which replaced the former Solvency I framework. The solvency ratio calculated based on the Solvency I requirements was volume-based and did not properly reflect the risks of an insurance company (e.g., Cummins & Phillips, 2009;Erdélyi, 2016). The solvency ratio required under the Solvency II framework is, similar to banks' Basel II requirements, more risk-based (Marano, 2017).…”

Section: Introductionmentioning

confidence: 99%

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The information content of the Solvency II ratio relative to earnings

Mukhtarov¹,

Schoute

Wielhouwer

2021

J of Risk & Insurance

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We examine the information content of disclosures of solvency and earnings information of European insurance companies under the Solvency I and Solvency II regulatory regimes. Using an event-study research design, we investigate a sample of 571 announcements of 46 insurance firms during the 2012-2018 period. We find that under the Solvency I directive, investors find unexpected earnings to be informative but not the unexpected solvency ratio. However, under the Solvency II directive, both unexpected earnings and the unexpected solvency ratio are relevant to investors. Based on a decomposition of explained variance, we find that under the Solvency II directive, investors' attention has partly shifted away from earnings information toward solvency information. Our results indicate that the disclosed solvency ratios contain value relevant information under the risk-based Solvency II framework and that the requirements under this framework shift investor attention toward solvency information and away from earnings of European insurance companies.

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Section: Solvency Announcements and Information Contentmentioning

confidence: 99%

Section: Solvency Announcements and Information Contentmentioning

confidence: 99%