Abstract
The aim of this paper is to analyze the impact of Enterprise Risk Management (ERM) on the performance, value and risk not only of European insurance companies, but also of Middle Eastern and African (MEA) ones using Standard and Poor’s (S&P’s) ERM rating. Using information from 150 insurance companies, 101 from Europe and 49 from the Middle East and Africa (MEA), during the period 2014–2016, our main finding confirms the positive impact of implementing quality ERM in insurance companies, both in Europe and the MEA region. However, this is not valued by the market (using the Tobin’s Q) in the MEA region. Furthermore, we notice that the higher the ERM quality is for the MEA region, the lower the level of risk-taking by the company is. Finally, we find that the positive effect of ERM in companies operating outside Europe on accounting indicators is superior owing to the effect on performance being greater in companies in those areas, where improved risk management and corporate governance is more influential.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 According to ICP 16, “the supervisor requires the insurer to establish within its risk management system an enterprise risk management (ERM) framework for solvency purposes to identify, measure, report and manage the insurer’s risks in an ongoing and integrated manner”.
2 Little research has been done on ERM for non-insurance companies in developing countries either (see, for example, references in Saeidi et al.; 2019).
3 Solvency II is a regulatory system created by the European Insurance and Occupational Pensions Authority (EIOPA) for insurance and reinsurance companies which operate in the European Economic Area (EEA). Although its entry into force was postponed until January 1st 2016, a preparatory phase took place between January 1st 2014 and January 1st 2016. Until the full implementation, companies had to prepare for transition. EIOPA issued several guidelines on how to proceed in this preparatory phase. During this period, insurers had to meet the interim Solvency II requirements in addition to Solvency I requirements.
4 See Regulation of Solvency II: Chapter IV Section 2 of Directive 2009/138 and Chapter IX System of Governance of Delegated Regulation 2015/35.
5 To produce a long-term rating of an insurance company, S&P assesses the business risk profile of the company, while ERM rating and management and governance among other factors act like “modifiers”, or additional assessments that may modify the ratings (see S&P Citation2014).