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20 July 2015

Palgrave Journals: The Geneva Papers on Risk and Insurance - Special issue on insurance and finance


The first group of papers weaves through global financial stability and Solvency II issues in macro and micro regulations. The second delves into value creation through M&A and reinsurance for the global insurance. The third looks at added value and insurers’ market power.

The paper selected to lead this special issue and the first group of papers is that by Christian Thimann “On the Systemic Features of Insurance and Banking, and the Role of Leverage, Capital and Loss Absorption”. It provides a non-technical exposition of the systemic risks differences and similarities between banks and insurers as players in the financial sector. By providing comparisons between the balance sheet of banks and insurers, Thimann points out the major differences in systemic risk and systemic roles of the sectors. [...]

Following the overview paper, the second paper, “The Effects of a Low Interest Rate Environment on Life Insurers”, by Elia Berdin and Helmut Gründl, drills down into financial solvency and stability issues as a result of the extended period of low interest rates. In this highly technical paper, the authors focus on the German life insurers market with a creation of a representative insurer to study the effects of the low interest rates on current asset allocation and outstanding liabilities. [...]

The third paper in this group is “The Effects of Contingent Convertible (CoCo) Bonds on Insurers’ Capital Requirements under Solvency II” by Tobias Niedrig and Helmut Gründl. In the context of solvency and financial stability, CoCo bonds appear to be an important tool in the capital structure of banks and possibly an important investment for insurers. [...]

The second part of this issue is devoted to three papers that are in the valuation arena without outside interventions. The first of these papers is “Mergers and Acquisitions in the Global Insurance Industry: Valuation Effects”, by J. David Cummins, Paul Klumpes and Mary A. Weiss. This is an event study of the value creation of acquiring firms and target companies. [...]

While M&A transactions show added value to some insurers, the second paper in this group concentrates on specific transactions that transfer and acquire risks among insurers and reinsurers. In “The Structure of Reinsurance Contracts” by M. Martin Boyer and Théodora Dupont-Courtade, we learn about the market structure of reinsurance activities as evidenced by reinsurance contracts that were realised and those that remained as bids only. [...]

In contrast to the two global studies featured in this group, the third paper is limited to one national market, the South African general insurance market. In “Efficiency, Productivity and Returns to Scale Economies in the Non-Life Insurance Market in South Africa” by Abdul Latif Alhassan and Nicholas Biekpe, we learn what characteristics of this country’s property/casualty insurers support greater efficiency. [...]

The third part of this issue is devoted to two papers that are also in the valuation arena, but with outside interventions. The first of the two is “The Relative Informativeness of Analysts’ Stock Return Forecasts and Rating Changes for Insurance Companies” by Leon Chen and Steven W. Pottier. In this study, the authors prove the usefulness of the insurance industry analysts and rating agencies to investors. [...]

The second paper in this group looks into bailout by the government in “Government Intervention through an Implicit Federal Backstop: Is There a Link to Market Power? by David L. Eckles and James I. Hilliard. At the start of the financial crisis in 2008, the federal government in the U.S. provided bailout to some insurance sector players, mainly to the AIG. The study investigates whether the governmental assistance created market power in terms of more competitiveness for the insurer receiving the help. The findings are that, at that time, the bailout did not give a competitive edge to the recipient of the money.

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