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Enterprise risk management and solvency: The case of the listed EU insurers

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  • Nguyen, Duc Khuong
  • Vo, Dinh-Tri

Abstract

We investigate the relationship between Enterprise Risk Management (ERM) adoption and solvency for publicly listed insurers in the European Union. Our results, which control for endogeneity problem, show that ERM-adoption insurers experience a decrease in their solvency level, which may trigger their financial vulnerability in the case of unexpected shocks. Firm-specific characteristics such as leverage, ROA, combined-ratio and business type are also found to significantly increase the EU insurers’ solvency, whereas the impact of firm size and age is insignificant. Moreover, insurers that have adopted the ERM share the common characteristics of higher performance, higher leverage, bigger size, and more diversified businesses. Finally, the demand of the market is an important factor of ERM adoption and insurance solvency.

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  • Nguyen, Duc Khuong & Vo, Dinh-Tri, 2020. "Enterprise risk management and solvency: The case of the listed EU insurers," Journal of Business Research, Elsevier, vol. 113(C), pages 360-369.
  • Handle: RePEc:eee:jbrese:v:113:y:2020:i:c:p:360-369
    DOI: 10.1016/j.jbusres.2019.09.034
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    Cited by:

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    3. Jassem Alokla & Arief Daynes & Paraskevas Pagas & Panagiotis Tzouvanas, 2023. "Solvency determinants: evidence from the Takaful insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 847-871, October.
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    5. Lenka Syrová & Jindřich Špička, 2022. "The Impact of Foreign Capital on the Level of ERM Implementation in Czech SMEs," JRFM, MDPI, vol. 15(2), pages 1-17, February.
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    7. Toloo, Mehdi & Tone, Kaoru & Izadikhah, Mohammad, 2023. "Selecting slacks-based data envelopment analysis models," European Journal of Operational Research, Elsevier, vol. 308(3), pages 1302-1318.
    8. Barry Sheehan & Christian Humberg & Darren Shannon & Michael Fortmann & Stefan Materne, 2023. "Diversification and Solvency II: the capital effect of portfolio swaps on non-life insurers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 872-905, October.
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    More about this item

    Keywords

    Risk management; ERM; Insurance; Solvency;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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