Capital Requirements, Disclosure, and Supervision in the European Insurance Industry (eBook)

Maria Grazia Starita is Lecturer in Financial Markets and Institutions in the Department of Management Studies and Quantitative Methods, University of Naples 'Parthenope', Italy, where she teaches Management of Insurance Companies and Corporate Finance. Her main research interests are insurance companies, pension funds, bank-firm relationship, disclosure, and Islamic finance.Irma Malafronte holds a PhD in Banking and Finance from the University of Rome 'Tor Vergata', Italy. She conducts research in Financial Markets and Institutions in the Department of Management Studies and Quantitative Methods, University of Naples 'Parthenope', Italy. Her main research interests are insurance companies, disclosure, bank-firm relationship, and market discipline.

Cover 1
Half-Title 2
Title 3
Copyright 4
Contents 5
List of Boxes 8
List of Figures 9
List of Tables 11
Foreword 13
Acknowledgements 16
1 Introduction 17
1.1 Solvency II Directive and the key features of the European insurance market 17
1.2 The solvency capital requirement 19
1.3 The supervision of insurance companies 22
1.4 The regulatory framework for market discipline 23
1.5 The actual disclosure 25
Part I The Framework of Solvency II and the Characteristics of the European Insurance Market 27
2 Solvency II Directive and the Key Features of the European Insurance Market 28
2.1 Aims and scope of the Solvency II Directive 28
2.1.1 The ‘overall solvency’ approach 29
2.1.2 The three-pillar structure 44
2.1.3 Enhancing the risk management practices 52
2.2 The European insurance industry 55
2.2.1 Life insurance business in Europe 55
2.2.2 Non-life insurance business in Europe 59
2.2.3 Insurance industry and economic development 64
2.3 An empirical analysis of a sample of European insurers 67
2.3.1 The selection criteria 68
2.3.2 The sample 68
2.3.3 Descriptive statistics 69
Part II Solvency: Requirements and Supervision 74
3 The Solvency Capital Requirement 75
3.1 The solvency capital requirement 75
3.1.1 Assets, other liabilities, technical provisions, and own funds according to Solvency II 76
3.1.2 The modular approach to calculate the SCR 90
3.1.3 The new capital requirement and the insurer’s economic capital: what are the differences and similarities? 114
3.2 The minimum capital requirement 117
3.2.1 The role of the minimum capital requirement 117
3.2.2 The approach proposed by Solvency II 121
3.2.3 A review of trigger events 124
3.3 An empirical analysis of the European insurers’ requirements 126
3.3.1 The estimate of assets and technical provisions according to the standard formula 127
3.3.2 The estimation of the SCR 128
3.3.3 The estimation of the MCR 133
4 The Supervision of Insurance Companies 135
4.1 Risk management 135
4.1.1 Internal control system 140
4.1.2 Risk management framework 144
4.1.3 Asset-liability management 151
4.2 Supervision 155
4.2.1 The duties of supervisors 156
4.2.2 The supervisory review process 159
4.2.3 The virtuous cycle or the vicious cycle? 168
4.3 An empirical analysis of corporate governance 172
4.3.1 A description of the internal control system 174
4.3.2 A description of the risk management practices 178
4.3.3 A description of the investment activity 184
Part III The Relationship between Required Reporting and Actual Disclosure 188
5 The Regulatory Framework for Market Discipline 189
5.1 Market discipline through insurance and reinsurance undertakings 189
5.1.1 Supervisory authorities and market discipline in the European insurance industry 190
5.1.2 Information addressed to supervisory authorities for supervision purposes 205
5.1.3 Public disclosure by European insurance and reinsurance undertakings 209
5.2 Market discipline through supervisory authorities 213
5.2.1 Information disclosure by supervisory authorities to EIOPA 213
5.2.2 The duties of EIOPA 215
5.2.3 Disclosure by insurance groups 218
5.3 The stakeholders involved in the market discipline process 222
5.3.1 The roles of the actors involved in the disclosure process 222
5.3.2 The role of internal stakeholders 230
5.3.3 The role of external stakeholders 231
6 The Actual Disclosure 236
6.1 Disclosure and the call for enhanced information levels 237
6.1.1 Disclosure and related topics: definitions, differences, and similarities 237
6.1.2 The call for enhanced information levels 246
6.1.3 A review of the evidence on disclosure 253
6.2 The duality of the quality and quantity of disclosure 262
6.2.1 Qualitative and quantitative disclosure 263
6.2.2 The content analysis methodology 268
6.2.3 Initiatives in favour of greater disclosure 274
6.3 An empirical analysis of disclosure levels 276
6.3.1 The need to measure disclosure 277
6.3.2 Constructing a disclosure index for insurers 283
6.3.3 The level of disclosure in the European insurance industry 287
7 Conclusions 296
7.1 Moving forward 296
7.2 The simplicity and consistency of the new capital requirement 297
7.3 The continuous monitoring of solvency and the culture of risk 299
7.4 The disclosure of the insurer’s solvency: the connection between the three pillars 300
7.5 Insurers’ disclosure 2.0 301
Index 303