Analyst information processing of risk disclosures in the EEA insurance sector: a research note

Abstract

Purpose This study explores whether and how analysts covering insurers within the European Economic Area (EEA) use the mandatory risk disclosures as required under the Solvency II framework after the introduction of the Solvency and Financial Condition Report (SFCR). Design/methodology/approach This study is exploratory in nature and draws on evidence from eight semi-structured interviews with nine sell-side and credit analysts. Findings Dialogue with analysts documents their interest in Solvency II information, though they initially rely on solvency-related information provided during earnings calls due to later SFCR disclosure dates, duplication of material in the annual report and language barriers. Analysts underline the importance of the Solvency II ratio as a key indicator of insurers' solvency and risk. However, its direct use in the assessment process is limited by its inherent nature, comparability issues and insurers' transparency commitments, leading analysts to prioritise simplified interpretations and narrative discussions that better serve investors' informational needs. Research limitations/implications The exploration of analysts' use of Solvency II information is based on a small sample of semi-structured interviews that reflect participants' personal opinions, and it is acknowledged that generalisation of the findings might be limited. Practical implications The study contributes to related debates among regulatory authorities over the content and usefulness of Solvency II information, with the most recent and relevant being the Solvency II 2020 review. Originality/value The study offers a unique natural laboratory to explore analysts' information processing of risk disclosures, contributing to the broader and insurance-specific risk reporting literature and to the literature on the usefulness of accounting and non-accounting information for analysts.