Interaction Effects of Regulatory and Financial Reporting

The insurance industry plays a central role in the global economy by enabling companies and individuals to transfer and diversify idiosyncratic risks. In addition, insurers are among the most important institutional investors, providing long-term and stable funding for investments and growth. However, the nature of their business exposes insurers to significant insurance and financial risks. Given their central role for the global economy, transparent information on insurers risk, financial position, and performance is of crucial importance. Recognizing the economic role and risks of the insurance business, the European Union (EU), and the International Accounting Standards Board (IASB) have recently introduced unprecedented and substantial changes to insurers regulatory and financial reporting requirements. In 2016, the EU introduced an entirely new prudential framework for insurance regulation underpinning the importance of a risk-based approach to assessing and mitigating risks in the insurance sector. In 2023, International Financial Reporting Standard (IFRS) 17 came into effect to improve the financial accounting of complex insurance contracts. Both, Solvency II and IFRS 17, aim at increasing the transparency for insurers stakeholders such as policyholders, investors and regulators. Transparent information helps insurers stakeholders to assess the amount, timing and uncertainty of insurers cash flows and, in turn, to monitor and discipline insurers business and risk-taking decisions. The aim of this research project is to shed more light on the intended and unintended consequences of Solvency II and IFRS 17. Specifically, we examine how the substantial changes in the regulatory and financial reporting regimes have affected the reporting transparency of insurers and how capital market participants assess these (anticipated) reporting effects. We therefore infer the perceived costs and benefits of the reporting regime changes from the perspective of market participants. This will provide important insights for regulators, supervisors, and accounting standard setters on the effectiveness of the related regulations.

No additional funding sources recorded.