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The value and price of a "too-big-to-fail" guarantee: evidence from the insurance industry

Author

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  • Zanghieri, Paolo

    (Assicurazioni Generali SpA)

Abstract

This paper analyzes the impact of the evolution of the regulation dealing with systemically important insurance groups, using an event study methodology. The results show that investors were able to detect which companies were to be designated well ahead of the publication of the list. Most importantly, after an initial positive reaction, consistent with the expectation of a “too-big-to-fail” implicit subsidy, the disclosure on how the capital charges for systemic insurers would be calculated led to sizeable negative abnormal returns for the entities concerned. Leverage plays a key role in driving investors’ reaction; more leveraged entities experience higher abnormal returns when the expectation of a TBTF guarantee arises and lower ones when information on the size of the capital charges is revealed.

Suggested Citation

  • Zanghieri, Paolo, 2017. "The value and price of a "too-big-to-fail" guarantee: evidence from the insurance industry," Journal of Financial Perspectives, EY Global FS Institute, vol. 4(1), pages 21-49.
  • Handle: RePEc:ris:jofipe:0099
    as

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    More about this item

    Keywords

    Too big to fail; insurance industry; globally systemic financial insurers;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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