Solvency II Mandatory Implementation and Analysts’ Forecast Properties

47 Pages Posted: 1 Feb 2024

See all articles by Evangelos Seretis

Evangelos Seretis

University of Glasgow

Mark Aleksanyan

University of Glasgow

Ioannis Tsalavoutas

University of Glasgow - Accounting and Finance Group

Date Written: January 17, 2024

Abstract

From 1st January 2016, insurance firms in the European Economic Area (EEA) are required to adhere to the Solvency II regulation. As such, for the first time ever, insurance firms started to provide mandatory market, risk-related, disclosures on an annual basis via the publication of a single report: the Solvency and Financial Condition Report (SFCR). Considering that analysts are perceived as the main recipients of the report, this study tests whether and how analyst forecast properties (i.e., absolute forecast error, dispersion and forecast bias) change following the provision of Solvency II related information. Using a sample of EEA insurers for the period between 2012 and 2021 and a difference-in-differences design, we find an improvement in properties of analysts’ forecasts in the post Solvency II period. Specifically, while we find no change in analysts’ forecast bias, we show a reduction in analysts’ absolute earnings forecast errors, both at the consensus and individual analyst’s levels, and forecast dispersion. The findings extend the financial and risk-based reporting literature in the insurance industry and contribute to the wider analyst related literature in relation to changes in the reporting landscape. The study also informs the relevant regulatory authorities regarding the beneficial effects of Solvency II disclosures.

Keywords: Solvency and Financial Condition Report, SFCR, Solvency II, analyst properties, insurance firms

JEL Classification: G14, G22, G28

Suggested Citation

Seretis, Evangelos and Aleksanyan, Mark and Tsalavoutas, Ioannis, Solvency II Mandatory Implementation and Analysts’ Forecast Properties (January 17, 2024). Available at SSRN: https://ssrn.com/abstract=4698457 or http://dx.doi.org/10.2139/ssrn.4698457

Evangelos Seretis

University of Glasgow ( email )

Mark Aleksanyan

University of Glasgow ( email )

Adam Smith Business School
University of Glasgow
Glasgow, Scotland G11 6EY
United Kingdom

Ioannis Tsalavoutas (Contact Author)

University of Glasgow - Accounting and Finance Group ( email )

Glasgow, Scotland G12 8QQ
United Kingdom

HOME PAGE: http://www.gla.ac.uk/schools/business/staff/yannistsalavoutas/

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