Measuring Risk Premiums Using Financial Reports and Actuarial Disclosures

Jochen Zimmermann, Stefan Veith and Johannes Schymczyk ()
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Jochen Zimmermann: Faculty of Business Studies and Economics, University of Bremen, Hochschulring 4, Bremen 28359, Germany
Stefan Veith: Faculty of Business Studies and Economics, University of Bremen, Hochschulring 4, Bremen 28359, Germany
Johannes Schymczyk: Federal Financial Supervisory Authority of Germany (Bundesanstalt für Finanzdienstleistungsaufsicht—BaFin), Marie-Curie-Straße 24-28, Frankfurt am Main 60439, Germany.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2015, vol. 40, issue 2, 209-231

Abstract: Insurance companies increasingly augment their financial reports by releasing actuarial measures—the so-called embedded value—to supply information about the value of their life insurance activities. Both accounting and actuarial measures differ with respect to the timeliness of profit realisation and its reliability, and their performance in yielding information may differ. This paper asks if and how embedded values help in assessing risk premiums. We estimate multifactor market models in the spirit of Fama and French, and find that actuarial disclosures are superior to financial accounting in estimating these risk premiums. They further add information to financial reports as an estimator for growth opportunities.

Date: 2015
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