IDEAS home Printed from https://ideas.repec.org/p/boe/boeewp/0710.html
   My bibliography  Save this paper

An elusive panacea? The impact of the regulatory valuation regime on insurers' investment behaviour

Author

Listed:
  • Lepore, Caterina

    (Bank of England)

  • Tanaka, Misa

    (Bank of England)

  • Humphry, David

    (Bank of England)

  • Sen, Kallol

    (Bank of England)

Abstract

This paper examines how the interactions between the valuation regime and solvency requirements influence investment behaviour of long-term investors with stable liabilities, such as life insurers. Under limited liability, solvency requirements based on historical cost valuation encourage risk-shifting to the detriment of policyholders, while those based on fair value regime can induce procyclical asset sales. A hybrid valuation regime, intended to address these unfavourable outcomes, does not strictly dominate the other two regimes. But both fair value and hybrid regimes outperform the historical cost regime if the regulators can set the penalty imposed on insurers based on supervisory information about their asset quality, even if this information is imperfect.

Suggested Citation

  • Lepore, Caterina & Tanaka, Misa & Humphry, David & Sen, Kallol, 2018. "An elusive panacea? The impact of the regulatory valuation regime on insurers' investment behaviour," Bank of England working papers 710, Bank of England.
    • Handle: RePEc:boe:boeewp:0710
    as

    Download full text from publisher

    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2018/an-elusive-panacea-the-impact-of-the-regulatory-valuation-regime-on-insurers-investment-behaviour.pdf?la=en&hash=7FCE47CD18F20C3D1E34948BB184864BB9CEB522
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Palea, Vera, 2019. "Accounting for Sustainable Finance: Does Fair value Accounting Fit for Long-term Investing in Equity?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201912, University of Turin.

    More about this item

    Keywords

    Valuation; historical cost accounting; mark-to-market; risk-shifting; fire sales; prudential regulation; insurance;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0710. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Digital Media Team (email available below). General contact details of provider: https://edirc.repec.org/data/boegvuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.