Nadine Gatzert

Determinants of Policy Risks of Renewable Energy Investments

Policy or regulatory risks represent one of the major barriers for renewable energy investments, especially against the background of several retrospective reductions of support schemes in Europe. In this paper, we aim to contribute to the literature by offering a categorization of major risk drivers and determinants of policy risk associated with renewable energy projects in developed countries based on the literature and by studying empirically observed cases of support scheme cuts in Europe. The derived categorization of major risk drivers that may cause adverse changes of renewable energy regulations along with the presented set of indicators are of high relevance for risk management of renewable energy investments, where understanding the underlying risk drivers is vital.

Economies of scale in European life insurance

Purpose Due to the continuing low interest rate environment as well as the increase in acquisition costs, price transparency, cost transparency, and competition with banks, the cost of life insurance becomes increasingly important for customers, insurers, and shareholders. Against this background, the aim of this paper is to study the development of insurers’ economies of scale in regard to administrative costs for four of the largest European life insurance markets. Design/methodology/approach Our analysis on economies of scale is based on a comprehensive set of 477 life insurers in Germany, Italy, Spain, and the UK, yearly data between 2000 and 2014, and regression calculations that are based on 4,855 observations. Findings Our results show that economies of scale exist for all considered markets and for most of the considered years. However, the extent of economies of scale varies considerably across countries. Originality/value Overall, the existing academic literature on costs and corresponding econo...

Valuation and risk assessment of participating life insurance in the presence of credit risk

In participating life insurance, management decisions regarding the asset composition can substantially impact the value of a policy from the policyholders’ perspective as well as the insurer’s risk situation. Due to the long-term guarantees often embedded in these contracts, life insurers typically invest a considerable portion of their capital in long-term assets such as corporate and government bonds. Besides interest rate risk, the value of these bond investments is thus particularly influenced by credit risk. Thus, the aim of this paper is to examine the impact of market risk associated with the asset composition on fair valuation and risk assessment with focus on credit risk and its interaction with equity risk and interest rate risk. Our analysis emphasizes that the consideration of credit risk associated with bonds has a strong impact on the fair valuation and risk measurement in the context of participating life insurance contracts, even in case of higher grade bond exposures.

RISK- AND VALUE-BASED MANAGEMENT FOR NON-LIFE INSURERS UNDER SOLVENCY CONSTRAINTS

The aim of this paper is to propose an internal model for a non-life insurer and to apply this model for deriving optimal risk- and value-based management decisions regarding the insurer’s investment strategy, which contribute to increasing shareholder value. We thereby considerably extend previous work by explicitly accounting for the policyholders’ willingness to pay depending on their risk sensitivity based on the insurer’s reported solvency status, which will be of great relevance under Solvency II. We further study the impact of the risk-free interest rate on attainable and admissible risk-return asset combinations, dependencies between assets and liabilities as well as the influence of reinsurance contracts, and we derive analytical solutions for maximizing shareholder value. One main finding is that the consideration of the policyholders’ willingness to pay depending on their risk sensitivity towards the insurer’s reported solvency status is vital for optimal management decisions and that in the present setting, reinsurance increases shareholder value only for non-risk sensitive policyholders. Our results further emphasize that low interest rates strongly restrict the insurer’s investment opportunities.

Spillover Effects from the Volkswagen Emissions Scandal: A Comprehensive Analysis of Stock, Corporate Bond, and Credit Default Swap Markets

The Volkswagen emissions scandal is by far the largest case of emissions cheating in automotive history and had wide-reaching consequences for the industry throughout the world. This study examines the spillover effects to competitors and suppliers following Volkswagen’s public admission of manipulating their diesel engines to cheat regulatory emission tests. We analyze stocks, bonds, and credit default swaps beyond the usually measured losses in equity market value only. Our findings indicate negative spillover effects for competitors and suppliers worldwide. Distinguishing between European and non-European firms, we find negative spillover for European firms whereas non-European firms partly show positive (but mostly insignificant) effects. Our findings emphasize that both the equity and debt of a firm should be considered when estimating firm value losses due to spillover effects.

The Impact of Disability Insurance on a Portfolio of Life Insurances

The aim of this article is to study the impact of disability insurance on an insurers risk situation for a portfolio that also consists of annuity and term life contracts. We provide a model framework using discrete time nonhomogeneous bivariate Markov renewal processes and in a simulation study focus on diversification benefits as well as potential natural hedging effects (risk-minimizing or risk-immunizing portfolio compositions) that may arise within the portfolio because of the different types of biometric risks. Our analyses emphasize that disability insurances are a less efficient tool to hedge shocks to mortality and that their high sensitivity toward shocks to disability risks cannot be easily counterbalanced by other life insurance products. However, the addition of disability insurance can still considerably lower the overall company risk.