Italian Insurance Companies Research Articles

Financial Stability of European Insurance Companies during the COVID-19 Pandemic

The European Insurance and Occupational Pensions Authority suggests that as the coronavirus disease 2019 (COVID-19) pandemic has caused significant disruption to the economy, businesses, and people’s lives, national supervisory authorities should mitigate the pandemic’s impact on the European insurance sector. The functioning of insurance companies is in danger as they must balance a drastic increase in the number of claims with their capital and solvency stability. In this study, we evaluate the effects of the COVID-19 pandemic on insurance companies using European insurance companies’ financial statement data from 2010 to 2020. The results unambiguously demonstrate that the pandemic has negatively affected the functioning of the insurance sector. In particular, the return on assets decreased in German and Italian insurance companies during the pandemic. Furthermore, the solvency ratio decreased in the Belgian, French, and German insurance sectors. Conversely, the Polish insurance sector was unaffected. Moreover, we did not find any effects on the Z-score ratio in our sample. Lastly, the value of receivables owed to Belgian insurance companies increased. Based on this evidence, we argue that European legislators should discuss how to manage the probable financial problems of insurance companies during the COVID-19 pandemic.

Can domestic trade credit insurance contracts be effective collateral for banks? A quantitative study of the Italian market

A domestic credit insurance contract is a policy that covers the risk of the non-payment of future commercial credit as a result of the failure to pay within the agreed terms and conditions (protracted default) or the insolvency of the buyer. To evaluate the effective level of financial protection offered by trade credit policies, we collected a database of contracts issued between 2006 and 2013 by a number of Italian insurance companies, which account for 80-85% of the Italian market. We find that, to be considered as able to mitigate credit risk, the policies must have their contract clauses changed. In that case, such a policy, if accepted by the supervisory authority, could permit banks to reduce the capital requirement connected with the discount of trade credits. These results are particularly important for insurance companies.

The effects of Solvency II on corporate boards: A survey on Italian insurance companies

Governance and the internal control system represent a fundamental pillar in the Solvency II Directive. In that context, the insurance companies’ board plays a key role in assuming new responsibilities and duties. The present work aims to examine the role of insurance companies’ boards in view of the important changes introduced by Solvency II. An empirical analysis is conducted on a sample of 102 Italian insurance companies. Three areas of investigation, size and composition, board self-assessment processes and board remuneration policies, are covered by the survey. The results show a satisfactory level of compliance of the boards with respect to the requirements established by Solvency II. There is still room for improvement as regards the level of disclosure and diversity. The paper contributes to deepen the understanding of Solvency II effects on the composition and functioning of insurance companies’ boards. In addition, the study provides, through the Italian case analysis, some indications on the likely future development of the insurance companies.

Duration, Convexity and the Optimal Management 0f Bond Portfolios for Insurance Companies

Two Fong-Vasicek immunization results are discussed and applied in relation to asset portfolios of a sample of Italian insurance companies managing life insurance with-profit savings. Firstly, we analyzed the contribution of Fong and Vasicek (1984) providing a lower bound on the “shortfall” of an asset portfolio, managed with a duration-matching target, in the face of an arbitrary shock to the term structure of interest rates. A “passive” management strategy emerges, aimed at minimizing risk, such that the exposure to an arbitrary variation of the shape of the term structure is minimized with respect to a risk measure that is increasing with the cash-flows dispersion. Secondly, Fong and Vasicek (1983) approach is generalized, in line with the classical risk-return approach to portfolio management, in a model which overturns the “passive” perspective of minimum risk exposure and looks for only a partial risk minimization in exchange for more return potential. The empirical application shows that such a perspective may be proved useful to highlight which segregated funds can be re-positioned over the efficient frontier, at the chosen level of the firm’s risk appetite.

The Italian Motor Insurance Market: Will the Recent Interventions Solve the Old Efficiency Problems?

Among the main European countries, Italy continues to be the one with the highest frequency of accidents and the highest average cost of damages. Moreover, there is a relationship between premiums and compensation costs: insurance premiums follow the trend of accident frequency and the average cost of claims. Therefore, this paper analyses the dynamics of the Italian insurance market in terms of premiums, claims and fraud. It then considers recent public interventions in relation to their efficiency in dealing with the problem of the excessively high level of premiums. Finally, an explanation is found for the weakness of competition and the distributional structure of Italian insurance companies.

Risk profile disclosure requirements for Italian insurance companies: Differences in the financial statement preparation

The content of the annual report of insurance undertakings is regulated by art. 2428 of Italian Civil Code, as well as by the Insurance Code and specific Italian Insurance Supervisor's regulations. The paper compare the existing legislations, providing an overview of the different requirements, with particular attention to the risk profile disclosure. Moreover, the paper analyzes a significant sample of Italian insurance groups annual reports (from 2007 to 2009 financial year), using content analysis, in order to highlight the level of compliance with the existing rules and the level of preparedness for the upcoming Directive 2009/138/EC requirements (Solvency II Directive), which will come into force starting from 2012 financial year.

Calibrating affine stochastic mortality models using term assurance premiums

In this paper, we focus on the calibration of affine stochastic mortality models using term assurance premiums. We view term assurance contracts as a “swap” in which policyholders exchange cash flows (premiums vs. benefits) with an insurer analogous to a generic interest rate swap or credit default swap. Using a simple bootstrapping procedure, we derive the term structure of mortality rates from a stream of contract quotes with different maturities. This term structure is used to calibrate the parameters of affine stochastic mortality models where the survival probability is expressed in closed form. The Vasicek, Cox–Ingersoll–Ross, and jump-extended Vasicek models are considered for fitting the survival probabilities term structure. An evaluation of the performance of these models is provided with respect to premiums of three Italian insurance companies.

Dividend policy and the global financial crisis: empirical evidence from the Italian insurance industry

The financial crisis has led to controversial discussions about the capital base of the insurance industry. Dividend cuts and capital increases have been suggested to counter diminishing equity. However, some observers seem to fear that investors could interpret a reduction of dividends as a sign for future problems. The empirical evidence from the Italian insurance sector reported here does indeed indicate that dividend smoothing is a relevant economic phenomenon. Therefore, Italian insurance companies should rethink dividend policy rather carefully due to the possible negative consequences of dividend cuts.

Adverse Selection, Statistical Discrimination and Antitrust Law: the Case of Italian Automobile Optional Insurance

Risk classification is common practise in the insurance market: on one hand, it can help to refine the premium schemes and improve the economic situation of the insurance companies; on the other hand, it is a traditional remedy for situations of adverse selection, as the economic theory has demonstrated. But the application of classification could be seen as altering competition in the marketplace when the statistical discrimination implies the adoption of the same price policies by many firms in the market. The paper tries to verify this affirmation in relation with the Italian market of the optional insurance against car thefts: in this liberalised market the insurance companies had applied risk classifications, but in 1994 the antitrust authority identified a cartel with reference to the exchange of statistical data to define a common statistical discrimination between the main insurance companies. In the final part of the paper, a model estimated using data about Italian insurance companies confirms the presence of adverse selection problems. This result could support the defence of the insurance companies based on the use of statistical discrimination as a remedy against informational problems. But, giving the same result also for the years after the antitrust authority sentence and the prohibition to the application of statistical discrimination, the result of the model could also be seen as a demonstration of the fact that in this case statistical discrimination was not a good tool against adverse selection problem.

A non-parametric statistical model for the control of Italian insurance companies

The problem of evaluating the solvency of insurance companies is tackled through the use of a non-parametric statistical model, constructed using decision-tree techniques. The model is tested on a sample of Italian non-life insurance companies and its performance over the test period compared with those of linear and quadratic parametric models.