Can ERM ratings explain the performance and risk of EMEA insurance companies?

Abstract

The aim of this paper is to analyze the impact of Enterprise Risk Management (ERM) on the performance, value and risk not only of European insurance companies, but also of Middle Eastern and African (MEA) ones using Standard and Poor’s (S&P’s) ERM rating. Using information from 150 insurance companies, 101 from Europe and 49 from the Middle East and Africa (MEA), during the period 2014–2016, our main finding confirms the positive impact of implementing quality ERM in insurance companies, both in Europe and the MEA region. However, this is not valued by the market (using the Tobin’s Q) in the MEA region. Furthermore, we notice that the higher the ERM quality is for the MEA region, the lower the level of risk-taking by the company is. Finally, we find that the positive effect of ERM in companies operating outside Europe on accounting indicators is superior owing to the effect on performance being greater in companies in those areas, where improved risk management and corporate governance is more influential.