Disclosure Practices and Financial Crisis : Empirical Evidences in the European Insurance Industry

This paper empirically investigates disclosure practices in the European insurance industry, over the 2005-2010 time period. First, it measures the quality of disclosure, through a set of readability indices, the quantity of disclosure, through the construction of a disclosure index based on the risk information companies provide, and how they relate. Then, it estimates the relationship between the extent of some insurers' specific variables and risk disclosure practices. Finally, it examines the potential impact of the financial crisis on the reporting choices. The main results show that the annual reports are difficult to read and it is not documented an effort by companies to enhance their understandability, thus they seem to be addressed to a high-level financial educated public. The quantity of risk disclosure has increased over time, with a stronger growth between 2008 and 2010, and there is no significant relationship between the quality and the quantity of disclosure. Finally, the analysis also shows that insurers' characteristics, in terms of size, profitability, technical provisions, as well as home country and the trade-off between accounting value and market value of equity, significantly affect the amount of risk information disclosed; in the years affected by the financial crisis, the quantity of risk disclosure increases. These results recommend sustaining the production of voluntary information during future financial crises, thus regulatory initiatives i.e. Solvency II may move towards this way in order to enhance further risk disclosure practices in the European insurance industry