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Are non-risk based capital requirements for insurance companies binding?

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  • Leo de Haan
  • Jan Kakes

Abstract

We investigate the capital structure of 350 Dutch insurers during the period 1995-2005. Our main findings are: (1) a small company size, a mutual organisation, high profitability, large equity investments, and being a fire insurer, all contribute to higher solvency margins; (2) minimum solvency requirements from the supervisor are less easy to explain by firm characteristics and do not correlate positively with risk; (3) neither do insurers follow solvency requirements closely; (4) most insurers have surplus capital which, together with a large company size and high profitability, reduces the risk of insolvency.

Suggested Citation

  • Leo de Haan & Jan Kakes, 2007. "Are non-risk based capital requirements for insurance companies binding?," DNB Working Papers 145, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:145
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    Citations

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    Cited by:

    1. Hakenes, Hendrik & Schnabel, Isabel, 2011. "Bank size and risk-taking under Basel II," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1436-1449, June.
    2. repec:spr:empeco:v:52:y:2017:i:4:d:10.1007_s00181-016-1107-3 is not listed on IDEAS
    3. Selim Mankaï & Aymen Belgacem, 2013. "Interactions Between Risk-Taking, Capital, and Reinsurance for Property-Liability Insurance Firms," EconomiX Working Papers 2013-23, University of Paris Nanterre, EconomiX.
    4. Bjoern Hagendorff & Jens Hagendorff & Kevin Keasey, 2013. "The Shareholder Wealth Effects of Insurance Securitization: Preliminary Evidence from the Catastrophe Bond Market," Journal of Financial Services Research, Springer;Western Finance Association, vol. 44(3), pages 281-301, December.
    5. Weiß, Gregor N.F. & Mühlnickel, Janina, 2014. "Why do some insurers become systemically relevant?," Journal of Financial Stability, Elsevier, vol. 13(C), pages 95-117.
    6. Altuntas, Muhammed & Berry-Stölzle, Thomas R. & Wende, Sabine, 2015. "Does one size fit all? Determinants of insurer capital structure around the globe," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 251-271.
    7. Bijlsma, Melle & Vermeulen, Robert, 2016. "Insurance companies’ trading behaviour during the European sovereign debt crisis: Flight home or flight to quality?," Journal of Financial Stability, Elsevier, vol. 27(C), pages 137-154.
    8. Fier, Stephen G. & McCullough, Kathleen A. & Carson, James M., 2013. "Internal capital markets and the partial adjustment of leverage," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 1029-1039.
    9. de Haan, Leo & Kakes, Jan, 2011. "Momentum or contrarian investment strategies: Evidence from Dutch institutional investors," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2245-2251, September.
    10. Hagendorff, Bjoern & Hagendorff, Jens & Keasey, Kevin & Gonzalez, Angelica, 2014. "The risk implications of insurance securitization: The case of catastrophe bonds," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 387-402.
    11. repec:bla:jrinsu:v:83:y:2016:i:4:p:1007-1043 is not listed on IDEAS
    12. Marín Díazaraque, Juan Miguel & Albarrán Lozano, Irene & Alonso, Pablo J., 2011. "Why using a general model in Solvency II is not a good idea : an explanation from a Bayesian point of view," DES - Working Papers. Statistics and Econometrics. WS ws113729, Universidad Carlos III de Madrid. Departamento de Estadística.
    13. Pasiouras, Fotios & Gaganis, Chrysovalantis, 2013. "Regulations and soundness of insurance firms: International evidence," Journal of Business Research, Elsevier, vol. 66(5), pages 632-642.
    14. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    15. Mühlnickel, Janina & Weiß, Gregor N.F., 2015. "Consolidation and systemic risk in the international insurance industry," Journal of Financial Stability, Elsevier, vol. 18(C), pages 187-202.

    More about this item

    Keywords

    Insurance companies; Capital structure; Solvency requirements;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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