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The effects of Contingent Convertible (CoCo) bonds on insurers' capital requirements under Solvency II

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  • Gründl, Helmut
  • Niedrig, Tobias

Abstract

The Liikanen Group proposes contingent convertible (CoCo) bonds as instruments to enhance financial stability in the banking industry. Especially life insurance companies could serve as CoCo bond holders as they are already the largest purchasers of bank bonds in Europe. The growing number of banks issuing CoCo bonds leads to a rising awareness of these hybrid securities among life insurers as they are increasingly looking for higher-yielding investments into bond-like asset classes during the current low interest rate period. Our contribution provides an insight for life insurance companies to understand the effects of holding CoCo bonds as implied by the Solvency II standards that will become effective by 2016.

Suggested Citation

  • Gründl, Helmut & Niedrig, Tobias, 2015. "The effects of Contingent Convertible (CoCo) bonds on insurers' capital requirements under Solvency II," SAFE Policy Letters 45, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safepl:45
    DOI: 10.2139/ssrn.2593035
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    Cited by:

    1. Thomas Poufinas & Evangelia Siopi, 2024. "Investment Portfolio Allocation and Insurance Solvency: New Evidence from Insurance Groups in the Era of Solvency II," Risks, MDPI, vol. 12(12), pages 1-33, November.
    2. Caporale, Guglielmo Maria & Kang, Woo-Young, 2021. "On the preferences of CoCo bond buyers and sellers," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    3. Philippe Oster, 2020. "Contingent Convertible bond literature review: making everything and nothing possible?," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(4), pages 343-381, December.

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • 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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