UNIVERSITY OF SURREY

School of Management
Financial disclosure and market reaction in a crisis situation

by

A. Voeiker

Submitted in part fulfilment of the requirements for the degree of Doctor of Business Administration May 2011

ABSTRACT

The research question of this study is whether or not companies can improve the relationship with their investors by voluntarily extending the scope of their risk disclosure. The novel aspect of this research is that it analyses the relationship between companies and investors in a unique crisis situation. This thesis explains and tests the relationship between listed European insurance groups that disclose risk information in their annual financial statements and the reaction of the capital market during the recent sub-prime loan crisis. It covers the disclosure periods 2007 and 2008 of thirteen insurance groups that file their financial reports according to International Financial Reporting Standards (IFRS). Based on literature it is assumed that during a crisis situation investors estimate the value of the company they have invested in and decide whether or not they sell their shares or hold on to them. Research studies indicate that investors demand company-specific information about the investment risk, measurement of financial instruments and forecasts that are up to date and specific to the crisis situation. To analyse the relationship between listed companies and investors the thesis measures their disclosure performance and the capital market response towards it. A self administered discretionary risk disclosure performance index is used that is based on

accounting disclosure requirements and specified to the crisis. It measures the disclosure of companies about mortgage portfolio-based financial instruments. These instruments caused financial distress of banks that spread to a global economic crisis. The thesis measures the reaction of the capital market towards the disclosed risk information by applying the event study methodology at the peak of the crisis situation.

The statistical analysis of the relationship indicated that voluntary risk disclosure is not well recognized by investors as reported in the literature. It found out that investors had recognized those listed European insurance groups that have been most severely affected by the financial crisis. Investors came to that conclusion even before the researched companies disclosed risk information about their financial instruments in annual group financial statements.

The statistical research has been extended using structured-interviewswith experts that represent significant users of financial information.This qualitative approach seeks to verify and explain the statistical results.
The results of the interviews with professional users of financial information such as financial analysts, managers of rating agencies and bankers have shown that they do not depend on risk information from annual financial statements of respective companies. They seek to get risk information in the event of a crisis by directly addressing the management of insurance groups. This enables them to gain

comments on the impact of upcoming problems in the financial market from these managers.

These results imply that theories about the relationship between disclosing companies and the capital market are different in crisis situations when psychological factors influence the behaviour of both companies and the capital market. These factors are difficult to separate and need further research.
Practical implications of this research study arise for regulators and standard setters. Regulators should be aware that communication between management and

professional users of financial information exists that exclude private investors during a crisis situation and deprives them from company-specific and recent information. This information disadvantage of private investors is amplified by the difficulty to understand the business model of the insurance industry. Therefore detailed and understandable information that explains the aftermath of the financial crisis on the insurance company should be made freely and promptly available. Regulators should require the insurance industry to do so because their discretionary risk disclosure is not sufficient to enable private investors to make snap-shot financial decisions. Based on the evidence that insurance groups have hesitated to disclose their risk positions during a crisis, it is questionable whether they will comply with upcoming financial standards that require the disclosure of sensitive data about the fair market values of assets and liabilities. These data can be considered equally sensitive to listed insurance groups as information about their risk position on financial instruments. Such hesitation may be critical in other crisis situations when discretionary disclosure is

necessary from an investor point. Accounting requirements cannot add the necessary

information because they cannot be modified quickly enough to force companies to disclose risk information that is critical in each individual crisis. Regulators and accounting standard-setters should not rely on listed European

insurance groups disclosing sufficient risk information during a crisis voluntarily. They disclose for insurance to information incentives groups about their risk enhance should institutional field between investors level to playing with easier access create a position to crisis relevant information and private investors that lack such information in crisis situations. Investors should reward discretionary risk disclosure of companies by investing in them.

DECLARATIONOF ORIGINALITY
I declare that my thesis entitled Financial disclosure and market reaction in crisis situation fort he degree of Doctor of Business Administration (DBA) of the University of Surrey, embodies the results of an original research programme undertaken by me. I have included specific references to any other work, by me or other sources, whether published or not.

Ansgar Voelker
Date:

TABLE OF CONTENTS

Page
1. Introduction 2. Relevance and Definitions 9 15

2.1. Insurance companies and the financial crisis 2.2. Investors and the financial crisis 2.3. Relevanceof risk disclosurefor future accountingstandards
3. Literature Review

17 20 23
27

3.1. Communicationbetween companies and the capital market

30 3.1.1. Theories on communication 30 ............................................................... 3.1.2. Empirical research on communication 31 ............................................... 3.1.3. Forms and legal requirementsof risk disclosure 38 ............................... 3.1.4. Implicationsfor the research methodology 51 ........................................
53

3.2. Motivation of companies to disclose risk

62 3.3. Reaction of the capital market towards disclosure 63 3.3.1. Participants in the capital market ....................................................... 67 3.3.2. Psychological factors that influence the capital market .....................

3.2.1. The principal agent theory 53 ................................................................. 3.2.2. Corporate governance affects risk disclosure on corporate level......55 3.2.3. Non organizationalfactors 57 ................................................................. 61 3.2.4. Implicationfor the research methodology ..........................................

69 3.3.3. Implicationfor the research methodology .......................................... 72 4. Hypotheses

4.1. Development of Hypotheses 4.2. Selection of Variables 72

77

4.3. Measurement of Variables 81 4.3.1. Self-administered risk disclosure performance measurment 81 ............ 88 4.3.2. Measurement of the capital market reaction variable (CAR) ............. 99 4.3.3. Change in modified equity ratio 2007 to 2008 ................................... 101 4.3.4. Percentage of institutional investors of stated equity ...................... 102 4.4. Research Methods for Data Processing 4.5. Data and Sample Selection 5. Research Methodology 5.1. Epistemology 104 107 108

5.2. Assumptions
5.3. Quantitative Methods

111
114

5.3.1. Testing for Normality

........................................................................ 115 5.3.2. Setting of the confidence interval ..................................................... 117 5.3.3. Correlation analysis between two variables .....................................

115

118 5.3.4. Regressionbetween multiple variables ........................................... 119 5.4. Qualitative Methods 124 5.5. Confidentialityand Ethical Considerations
6. Results and Discussion 6.1. Statistical Results and Discussion 6.1.1. Results of the test of normality 126 126 ......................................................... 126

128 ................................................. 6.1.3. Multivariate regression 131 ..................................................................... 6.2. Qualitative results and discussion 132 6.2.1. Experts on the implied theory 133 .......................................................... 6.2.2. Experts on the research methodology 135 .............................................
6.2.3. Experts on the results of the statistical results 140 .................................

6.1.2. Correlationsbetween the variables

6.2.4. Experts on the future implicationof research results 142 ...................... . 7. Conclusions and Implications 145
7.1. Main findings 7.2. Implications of the findings 7.3. Limitation of the research 7.4. Policy orientated suggestions 145 147 148 149

Appendices

168

LIST OF TABLES

Page

Table 1: Confidence intervals

112

Table 2: Test of normality Table 3: Univariateanalysis measured by Pearson correlation

124 128

111

LIST OF APPENDICES

Page

Appendix A: Checklist 2007 for measuring risk disclosure performance Appendix Aa: Checklist 2007 Pre-crisis Aegon Appendix Ab: Checklist 2007 Pre-crisis Allianz Appendix Ac: Checklist 2007 Pre-crisis Aviva Appendix Ad: Checklist 2007 Pre-crisis Axa Appendix Ae: Checklist 2007 Pre-crisis Generali Appendix Af: Checklist 2007 Pre-crisis Hannover Re Appendix Ag: Checklist 2007 Pre-crisis ING Appendix Ah: Checklist 2007 Pre-crisis MunichRe Appendix Ai: Checklist 2007 Pre-crisis CNP Assurance Appendix Aj: Checklist 2007 Pre-crisis Legal & General Appendix Ak: Checklist 2007 Pre-crisis Standard Life Appendix Al: Checklist 2007 Pre-crisis Old Mutual Appendix Am: Checklist 2007 Pre-crisis Zurich Appendix B: Checklist 2008 for measuring risk disclosure performance Appendix Ba: Checklist 2008 Pre-crisis Aegon Appendix Bb: Checklist 2008 Pre-crisis Allianz Appendix Bc: Checklist 2008 Pre-crisis Aviva iv 204 211 215 165 168 171 174 177 180 183 186 189 192 195 198 201

Appendix Bd: Checklist 2008 Pre-crisisAxa

Appendix Be: Checklist 2008 Pre-crisis Generali Appendix Bf: Checklist 2008 Pre-crisis Hannover Re Appendix Bg: Checklist 2008 Pre-crisis ING Appendix Bh: Checklist 2008 Pre-crisis MunichRe

219
223 227 231 235

Appendix Bi: Checklist 2008 Pre-crisisCNP Assurance Appendix Bj: Checklist 2008 Pre-crisis Legal & General Appendix Bk: Checklist 2008 Pre-crisis Standard Life
Appendix BI: Checklist 2008 Pre-crisis Old Mutual Appendix Bm: Checklist 2008 Pre-crisis Zurich

239 243 246

250 254

Appendix C: Scoring documents for measuring risk disclosure performance 258 in 2007 2008 the checklists and applied -criteria
Appendix D: Variables, Formulas, Results and data of the event study method Appendix E: Document for measuring the modified equity ratio 312 296

Appendix F: Clustering listed European insurance groups 2007

Appendix G: Clustering listed European insurance groups 2008 Appendix H: Guidelines for structured interviews with experts

313
314 315

Appendix {: Interviewswith experts in the European insurance industry

Appendix la: Interview Anonymous (2010) Appendix lb: Interview Noack (2010) 317 321

Appendix Ic: Interview Seel (2010)

Appendix Id: Interview Anonymous (2011 a) Appendix le: Interview Anonymous (2011 b)

325 329 332

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ACKNOWLEDGMENTS

I would like to thank my wife, my parents and my family for their support. During the four year program I much appreciated the guidance and help from my supervisors Professor Dr. Chen and Professor Dr. Gilbert. I enjoyed discussing topics with Mr. Otte (DeutscheBank),Mr. Funck (GoldmanSachs),Ms. Rieger, Ms. Varney, Dr. Weber and Dr. Edelkoetter. It has been a great, challengingbut somewhat lonely time.

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ABBREVIATIONS

AICPA AIMR CIFAR DAX GRS EC EFRAG FAF

American Institute of Certified Public Accountants Association for Investment Management and Research Center for International Financial Analysis Research Deutscher Aktien Index (German index of listed companies) German Reporting Standards European Commission European Financial Reporting Advisory Group Financial Analysts Federation

FASB GASB
HGB IASB IDW IFRS

Financial Accounting Standard Board German Accounting Standards Board

Handelsgesetzbuch (German Commercial Code) International Accounting Standard Board Institut der Wirtschaftsprfer (German Institute of Auditors) International Financial Reporting Standards

MDAX PwC
RechVersV WpHG

Mid-Cap-DeutscherAktien Index (German Index of listed mid-cap companies) PricewaterhouseCoopers

Verordnung ber die Rechnungslegung von Versicherungsunternehmen (Accounting Regulation for German Insurance Companies) Wertpapierhandelsgesetz (Securities Trade Act)

vii'

Chapter

1. Introduction
The subject matter of this research is the relationship between listed European insurance groups that disclose accounting information and the reaction of the capital market towards this information.

Under normal business circumstances companies disclose information about their business activities and the results they have achieved during the last financial period. Although the frequency of financial reports has increased with quarterly financial statements their function as a detailed analysis of the previously achieved financial result has not changed. With a background as an accountant in the insurance industry the researcher wanted to find out to what extent financial statements provide forward looking information which can be used by investors to take current financial decisions. Therefore it is the aim of this research study to analyse the content of disclosed information as well as the structure and efficiency of the relationship between disclosing insurance groups and the capital market in the light of the recent financial crisis situation. Is the capital market able to determine the market value of listed European insurance groups based on the information provided by them in their annual group financial statements? Accounting requirements applied in these financial reports are supposed to provide information according to IAS 1 par. 9 so that investors can predict 'the entity's future cash flows, their timing and certainty' (IASB, 2003) and be able to summarize them in a present market value. But is it right that the share price changes with the extent of disclosed information (Bealy et al, 2006) especially in a crisis situation when investors make snapshot decisions to hold or sell the share of a

troubled company?
From the perspective of the company preparing financial statements, when and to what extent do insurance companies disclose information about the risks they own in the form of structured financial instruments based on mortgage portfolios which have been felt to increase the financial distress during the financial crisis that lasted from 2007 to 2010 (Scharpf and Schaber, 2009)? Previous empirically proven research has

shown that discretionary disclosure - defined as voluntary disclosure that exceeds the requirements set by accounting standards (Core, 2001) - reduces cost of capital for the disclosing company (Welker, 1995, Sengupta, 1998, Healy et al, 1999, Botosan and Plumlee, 2002). However, all these studies used a discontinued US disclosure index and were performed under the assumption of normal market conditions such as a functional market and rationally acting shareholders. All these assumptions do not meet the conditions of the recent financial crisis which has the underlying characteristic that fair values of certain mortgage portfolio based financial instruments dropped significantly and remained low for more than one financial period of listed companies. The drop of fair value in these financial instruments affected the insurance industry, which is a pool of investments by its business model, most severely and uniformly whereas the effect on banks depended on their degree of activities in the securitization of mortgages that differed according to their location and business activities. By focusing on the risk disclosure performance of listed European insurance groups this research closes a research gap because financial institutions are often excluded from disclosure research studies as a result of their specific accounting requirements. By focusing on a crisis scenario the objective of the research is to eliminate other confounding factors that influence the relationship between disclosing companies and the capital market reaction expressed in their share market value. This research approach will deal with criticism by Healy and Palepu (2001) who hold that relationship models between disclosure and capital market are too simple and contain too many restrictions and assumptions. Another way to focus on a crisis situation is current research by Baek et at. (2002) that studied how companies disclosed their bad risk and how the capital market reacted in the 1997 Korean finance crisis. These researchers found out that Korean firms with higher disclosure quality suffered less in their share value during the crisis. The research question is whether or not this reaction of the capital market has continued in the recent global financial crisis. However Baek et at. (2002) used simple proxies to measure disclosure performance. Another objective of this research is to measure the disclosure performance with self-administered risk disclosure performance indices that can be considered scientific standard as applied by Kajter and Winkler (2003), Bungartz (2003), Vielmeyer (2004) and Khana et al. (2004) instead of proxies. 10

Therefore this disclosure research is performed using more specific disclosure

measurement methods and recognizing better risk disclosure performance by listed companies due to the application of a risk-related accounting standard 'financial instruments: disclosure' IFRS 7, (IASB, 2005). The recent sub-prime loan crisis offers a unique opportunity to analyse the effect of disclosure on investment / divestment decisions that financial market participants make during a period of time which is characterized by a uniquely non-transparent risk situation of financial companies (Baetge et al., 2008). Baetge et al. (2008) blame the spread of a regional crisis to a world-wide crisis on the chosen tentative step-by-step disclosure by banks of their financial distress. This lack of transparency leads to a world-wide crisis of trust between banks themselves and between banks and investors. Although insurance companies had not been directly affected by the sub-prime loan crisis, in the aftermath of the crisis they nonetheless had to cope with investors' anxieties and indirect effects on the valuation of their investments as the crisis continued. Therefore it is to be examined whether or not risk disclosure during the crisis has become a dominant factor that influenced the capital market. Can companies improve investors' trust in them by voluntarily extending the scope of their financial disclosure? Disclosure is regulated by German national and international accounting rules for listed companies. Originally only German accounting rules required extended corporate information about risks in a separate management report but international accounting rules have also adopted this approach recently (Kraft and Nolte, 2005). Do German national and international regulations provide a sufficient level of disclosure in order to compare risk disclosure of companies from different national backgrounds? Are there economic reasons that motivate companies to

exceed their mandatorydisclosure requirements?

When disclosing information about their own risk position insurance companies fear that this would be viewed critically by the financial market and their customers, i.e. as a sign of weakness in their business model (Meyer et al., 2004). This understanding has been influenced for the better or worse by the sub-prime loan crisis. When it peaked during 2008 investors were unsure about the extent to which financial institutions were involved in that crisis. Without sufficient information about the risk exposure of the for financial the in they consequences about each or shares owned which companies 11

company the share market failed to provide fresh capital so that banks and insurance companies in need of capital had to first look for sovereign wealth funds instead (Anonymous, 2008a) and then for governmental aid that few of them received. Although the relationship between disclosure and the capital market can be considered a mature research field according to Verrecchia (2001) the research objective to analyse the empirical effect of disclosure on the share performance of companies has rarely been explored due to declining data-bases, changing accounting standards, industry-specific regulations and excessive cost or improper computer tools to analyse qualitative data in financial statements (Daske and Gebhard, 2006). That is why this thesis analyses risk disclosure requirements and searches for incentives to exceed them, both for the company as information provider and for the investor as the user. To broaden the previous, predominantly economic approach, psychological motivations are embedded into this research to explain investor behaviour during times of crisis. The novel aspect of this thesis is to apply existing theoretical and empirical studies to the recent sub-prime loan crisis situation. Existing studies of investors' behaviour in crisis situations are either rare or restricted to regional markets (Baek et al, 2002) or certain institutions like US-Banks (Jain and Gupta, 1987). This thesis intends to close this research gap of risk disclosure and its effects on the capital market by applying different research tools to a sample group of listed European insurance companies during the recent market crisis. There are, however, a few observations to be made in respect of the scope of this work. Due to frequently changing disclosure requirements, this study is restricted to a relatively short time period with stable disclosure requirements and it is focused on a special industry that has been uniformly affected by the sub-prime loan crisis. These restrictions limit the sample size of analyzed companies in order to compare their risk disclosure performance with scientific diligence. The researcher acknowledges the validity of the content and of the measuring instruments as defined by Drucker-Godard et al. (2001) in this study. Through various behaviour listed disclosure influence literature the the that of risk variables of sources European insurance groups and the reaction towards it by the capital market have been indentified. The measurement process of the variables has been made transparent by disclosing every measuring step in the appendices of this study. The 12

results of this research study can be generalized based on the restrictions that only listed companies of a certain industry have been analyzed. In regard to the willingness of companies to disclose 'sensitive' information the insurance industry can be considered as a good proxy for companies from other industries because according to Meyer et al. (2004) insurance groups fear that disclosure of risks can be judged critically by investors and customers as a sign of weakness in their business model.

This enables the researcher to identify tendencies of management to detain `sensitive' information.These traits can be considered by regulators and standard setters in their attempt to provide all investors with relevant information. Another aspect of validity is that predictions based on one research instrument need to be confirmed by another. The statistical analysis of data from a limited sample size can lead to misleading results that should not be generalized. This problem has been addressed in this research study by holding structured interviews with experts in the field of the European insurance industry. The intention was to verify statistical results in order to improve the research results by the research concept of triangulation. By using two methods to analyse the research question the consistency of findings generated by the one method is validated by the other one (Patton, 2002).
The overall objective of this thesis is to provide insight into the relationship between risk disclosure contained in the annual group financial statements of 2007 and 2008 within the European insurance industry, their share performance in contrast to an index at the peak of the crisis and the effect the financial crisis had on the insurance group using their modified equity ratio as a proxy. This research objective has lead to the following structure in this thesis: The relevance of risk disclosure for insurance companies, investors and future accounting standards as well as the definition of terms are set out in chapter 2 'Relevance and Definitions'. Chapter 3 'Literature Review' analyzes the theoretical aspects and empirical studies in the literature on the relationship between disclosing insurance companies and the capital market. Chapter 4 'Hypotheses' contains the research question and the hypotheses that derive from it. The literature review shows that certain aspects should be considered in selecting and applying research instruments. Chapter 5 'Research Methodology' sets out the research methods used to analyse the relationship. This chapter presents the epistemological standpoint of the researcher and assumptions 13

made in this thesis. Additionally the quantification of the variables risk disclosure performance, the capital market reaction, the effect of the crisis on companies and the degree of institutional investors are described. This chapter also explains the use of qualitative research methods. In chapter 6 'Results and Discussion' the results of the quantitative and qualitative research instruments are presented. Chapter 7 'Conclusions and Implications' sets out the findings, limitations of this thesis and includes impulses for disclosing companies, standard setters and regulators as well as investors.

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Chapter

2. Relevance and Definitions

The purpose of this chapter is to show the relevance of the recent financial crisis for the insurance industry by answering the two following questions: What has been the key effect of this crisis and why has the insurance industry been affected more than other ones by this crisis? The next step analyzes the type of information required by investors during a crisis. This is based on influential studies and leads to the definition of terms used throughout this thesis. The results of this chapter are used to analyze how the effect of the crisis is disclosed in the financial statements in subchapter 3.1.3. Based on this the risk disclosure performance of insurance groups is measured in subchapter 4.3.1.

According to Reinhart and Rogoff (2009) a crisis is characterized by a major decline in economic performancefor an extended period of time. The origin of the financial crisis
that is the topic of this thesis consisted of deferrals of payments in mortgage loans of financially weak private individuals in the United States of America during the years 2007 and 2008 (Scharpf and Schaber, 2009). This led to financial troubles of US mortgage financial institutes. Also affecting other US-banks the crisis extended to the share market. The US share market lost wealth of about $8 trillion between October 2007, when the share market reached (Brunnermeier, 2009). an all-time high, and October 2008

Thus, the key effect of this crisis has been a sudden decline of the fair values of investments that lasted longer than one financial period. Falling prices of bank shares and other equity investments increased the risk of insurance companies as significant institutional investors. According to Scharpf and Schaber (2009) investments that were first and most directly hit were Asset Backed Securities (ABS), Commercial Mortgage Backed Securities (CMBS), Residential Mortgage Backed Securities (RMBS) and Collateral Debt Obligations (CDO) and other financial instruments directly connected to the falling US-housing market. Corporate as well as sovereign bonds were hit indirectly by their lower fair value. Lower market prices of investments lead to immediate losses in the profit and loss statements as well as reduced equity positions in the balance sheets of listed European insurance groups depending on their categorization of 15

investments according to the international accounting standard IAS 39. The default of bond issuers hit listed European insurance groups because they are required by investment their hold to portfolio in corporate and a part of regulations national governmental bonds. This situation is characterized as credit risk. 'Default' is recognized in the financial statements as a loss that is subtracted from equity in the same financial period. Additionally markets for certain financial products did not function any more so they were unable to value structured financial instruments any more (Brunnermeier, 2009). The nature of these instruments and the insecurity about their price or about the assumptions that were made in order to calculate their fair value by using mathematical models spread the crisis globally and affected the global economy.

Why is this financial crisis particularly relevant for the insurance industry? Insurance companies are unique because the handling of risk over a long period of time is the main economic purpose of this industry. It shares risks like investment risks with other financial institutions, however the distinctive criterion of the industry is covering insurance related risk and matching it with investment risk (Groer, 2001). In order to provide insurance coverage insurance companies manage the premiums they receive from customers and the claims for which they have to indemnify their customers by matching the timing and level of cash inflows from premiums and the cash outflows from claim events (Rejda, 1998). They invest cash inflows deriving from insurance premiums in short and predominantly long term financial instruments. After the occurrence of claims based on an insured event these investments are sold to create cash outflows available to settle the claim of the insurance customers. Because most likely there is an extended time period between the cash inflow of insurance premiums and the cash outflow to settle claims, insurance companies are pools of capital investments (Farny, 2000).

The following subchapters link the effects of the crisis such as a prolonged decline in the fair value of investments, insecurity about measurement of these investments and the future development of companies to the insurance industry. Subchapter 2.1. describes three characteristics of insurance companies in order to answer the question

Subchapter 2.2. by industry has been the insurance the analyses crisis. affected why during investors is important to information kind a crisis situation. of risk what
16

Subchapter 2.3. distinguishes certain terms used throughout the thesis and puts this research in a wider perspective of upcoming accounting regulations that are regarded as a paradigm change in the European insurance industry.

2.1. Insurance companies and the financial crisis

According to Schmalenbach (1953) accounting pursues the aim of an income calculation on an accrual basis that recognises the financial period to which economic effects belong over the timing of payments. Another objective is to present all assets and liabilities at a certain point of time to provide a true and fair view on the economical situation of the company (Cropper et al, 1949). To accomplish both objectives accounting regulations on the recognition, measurement and disclosure of economic circumstances were adopted. Especially the measurement and disclosure as part of insurance companies' accounting has been influenced by the crisis which is

characterized by a sudden decline of the fair values of investments.

Insurance companies share the following three characteristics that derive from their business model, that are considered in their accounting and that are linked to the financial crisis: They are pools of capital investments, they are guarantors of financial performance and they have a long term orientation in their business activities. Starting with the first characteristic the primary focus in the accounting of insurance companies are investments that are funded by premiums paid insurance customers. They are bought, measured over the period during which they are owned by the insurance company and then sold to provide the necessary cash flow to settle insurance claims. The measurement economically investments. international focused. Accounting To demonstrate accounting these of investments can be either prudent or differ in their way to measure differences the thesis lists German and Whereas for example German national

requirements

requirements.

historical the at the when valuation cost even allow market regulations accounting their 253 increases costs to 255 investments according above and value of international Code (HGB), accounting regulations such as Commercial German (IFRS) Standards Reporting prefer that market related increases Financial International in IAS loss to or accounts equity according 39 par. 46. the be shown either in profit and the by that restrictions documented are attached to other These preferences are 17

categories for investments with differing valuations. In the opposite case of falling market prices national German accounting regulations tend to disclose lower prices than historical cost of investments only when the fall in fair values is prolonged according to 253 (2) HGB. International accounting regulations on the other hand are faster in writing down the book value of investments to their lower market value (IAS 39 par. 58)

The risk of a lower book value of investments is epitomized in the market value. The market value measurement of investments has a significant impact on the accounting of insurance companies. The extent of the impact differs because it can affect yearly results as being part of the measuring aspect of accounting or only be a supplemental information without earning effects being a disclosure aspect of accounting. This accounting treatment differs by German national and international regulations. Whereas national German regulations refer to historical costs and present fair market values in the notes international accounting regulations such as AS 32 par. 11 and AS 39 par. 9 refer to the market value with effects on the annual results.
Therefore, the market value of investments can be part of the measurement process of assets in the balance sheet or it can be an additional disclosure outside the balance sheet and without effects on equity or profit and loss account. Confusingly, both accounting ways are named fair value accounting in the literature (Barleu and Haddad, 2003, p. 387). It is therefore important to distinguish between fair value accounting with effects on equity and profit and loss accounts and accounting without them. Therefore,

this thesis presents special definitions in chapter 2.3.

The measurement of the market value of investments is the responsibility of the company, and it can differ according to methods chosen and assumptions made by the insurance companies. One assumption made by the standard setters in requiring the measurement of assets with their fair market value has been the existence of a functioning market that could provide a price at any given point of time for every asset. Thus, the risk of incoherent market value measuring increases during a crisis situation when companies tend to change their assumptions, be it as part of a change in accounting policies or due to the lack of functioning markets and the resulting lack of prices provided. This phenomenon of changing assumptions has arisen during the 18

financial crisis. It caused the IASB as an accounting standard setter to publish guidance on this topic at the height of the financial crisis (IASB, 2009a). Aside from market valuation of investments also obligations which insurance companies have against their customers can be measured at market value. Although these obligations are not traded on active markets so far, their market value can be calculated based on mathematical models. This is the idea of an ongoing discussion about the accounting of insurance contracts which will be discussed in chapter 2.3. The second characteristic of insurance companies is their guarantor status. E.g., in life insurance contracts companies guarantee future death or surrender benefits to their customers. These amounts are calculated based on the assumption of a certain investment rate that can be met by the average return on investments of the life insurance company. As a guarantee this interest rate is locked in as part of the life insurance contract. The life insurance company recognize as a guarantee provided and records it as a liability for future policy benefits (Mayr, 1999). If insurance groups with such guarantees are confronted with lower investment income they have to fund the difference between higher guarantees and lower generated investment income with their own money by lowering their equity ratio. These guarantees - common especially in German life insurance contracts - amplify the crisis effect on the equity ratio for these insurance groups even more. In a financial crisis these guarantees add financial stress to insurance companies because the guarantees are steady expenses that are not compensated by fluctuating investment income. The investment income decreases because of depreciation and impairments on investments due to their lower fair market values that reduce income of the period. Also, investments are harder to sell during a crisis so that higher expenses cannot easily be compensated by gains that are realized by their sale. This leads to liquidity problems of insurance companies and requires them to use their equity to compensate for the expenses deriving from financial guarantees. With a prolonged reduction of equity in a crisis the companies can face insolvency.

The third characteristic of insurance companies is their long term orientation. They can be held liable for claims from their insured customers even after years. That
in financial their time their choosing preference and strategy affects responsibility investments (Farny, 2000). An accounting implication of this characteristic is that future risks are recognized in the accounting for investments of insurance companies as a

19

discounted receivable amount. This time-based measurement is an accounting

treatment that can be influenced by a financial crisis. The long-term perspective exaggerates negative effects on the present value measurement because the assumptions that are implied in the fair value of long term investments are based on in fair Therefore the financial a crisis situation value of long term conditions. recent investments decreases more rapidly than short term investments.

Insurance companies are characterized by their investments measured at market value, a guaranteed return of life insurance contracts and their future long term orientation.As a result the insurance industry is more sensitive to a rapid decline in the market value of investments during crisis situations than other industries. The next chapter presents three approaches to find out what kind of information is relevant to investors during a crisis situation.

2.2. Investors and the financial crisis

The risk situation of insurance companies has been significantly changed by the financial crisis with its sudden decline of fair values of investments. This change had to be recognized in their financial reporting because due to its characteristics the risk

position of insurance companies worsens with a prolonged decline in investment value. What kind of information is demanded by investors during a crisis situation? Three approachescan be used to answer these questions:
A regulatory approach analyzes how regulations are altered in response to the credit crisis. Such changes indicate what information has not been disclosed by the companies. New regulations demonstrate what information were relevant and required

as the crisis continued.

The long term investor approach searches for types and formats of information that are investors investors. influential based for This is among on surveys approach relevant that identified perpetual risk information requirements of financial market participants. The situational approach seeks to find situational information that is required by investors. This thesis tries to find key words from media that provide this type of information and are relevant and special to the crisis from an investor point of view.

20

The regulatory approach has to focus on international regulations because of their flexibility. Unlike German national regulations that have not been altered international the in March 2009 to the with credit crisis a reaction as regulations changed fair 2009 the in May IFRS 7 standardization of value with and of amendment The IASB, 2009b). 2009a (IASB, amendments required additional and measurement disclosure of companies about their methods of measuring risk and explicit statements information had be disclosed Such to liquidity the since additional risk. group's about 2008 in the notes of consolidated financial statements. These corporate specific data by for investors because they be important were additionally required can considered regulators in the financial crisis.

Although these data were situational influential studies by AICPA (1994) and by EFRAG (2009) document that the information requirements of investors are almost constant over time. This long term investor approach is based on the assumption that information demand increases in importance to investors during crisis situations.
The AICPA study - later in literature named the Jenkins Report - resulted in recommendations to improve US business reporting. It is based on a survey that collected the opinions of investors and creditors as primary users of financial statements. The users recommend to disclose financial and non-financial measures to explain long term developments of companies and rapidly changing situations. As a result of these studies it became apparent that users have a high interest in being able to identify trends, the substance of transactions and the significance of risks. This risk information demand can be seen as a prerequisite for active investors. Provided with relevant situational risk information they want to be enabled to make investment or divestment decisions in the financial market. As a result they demand risk disclosure on uncertainties over the valuation of assets and the economic substance of complex capital instruments (Elliott, 2007). The EFRAG study (2009) is based on a survey of investors, creditors and financial USA this the to Whereas Jenkins the study covered a restricted report was analysts. before 2006 the European The of end at carried out was countries. survey sample'of the recent financial crisis. The assumptions of the Jenkins report that investors and 'hold/buy/sell' their to information in financial make statements creditors use risk decisions have been empirically confirmed by the EFRAG study. Similar to the Jenkins information EFRAG the risk about more want the study of surveyed user groups report 21

financial information. Empirical support for prospective and management additional risk this demand was provided by another corporate reporting survey conducted in 2007 (PwC, 2007); this survey specifies that investors request risk information about the future economic perspective of a company in respect to management forecasts. Along financial found that forecast the PwC this out users of statements demand survey with risk information about the current investment risk associated with the type and the valuation of investments. Summarizing the long term investor approach it can be empirically supported that investors demand for certain types of risk information is constant and increases during a crisis. The relevant risk information concerns prospective developments of the fair value of financial instruments that companies are invested in.

The risk situation of every company is different. How can this thesis compare the risk disclosure among financial statements issued by various listed insurance companies? The situational research approach that analyzes a group of companies must focus on risks that are common to all companies. Research by Chen (2007) supports this approach by using bank reports to provide key words that are associated with investment risk. Using this approach risk information from different companies can be compared and analyzed in regard to the frequency of these keywords. This approach is supported by findings of Coval et al. (2009) on the recent financial crisis. They found out that structured financial products which are the heart of the financial crisis are affected by systematic risk factors to an exceptional degree. They found out that risk information in the form of corporate explanations on systematic risk factors are extensive in financial statements and connected to key words. The situational approach states that risk information of companies with the same risk position is similar by containing common key words. This characteristic can be used in the research methodology to identify and compare risk information. Based on the aforementioned approaches there is a shared understanding that risk information does matter to investors. The information should cover trends and other

up-to-date developments to companies and the risk that is associated with them. This demand can be specified to the recent crisis situation. Risk that derives from certain type of financial instruments and the effect of a sharp drop in the fair value of these instruments are relevant to investors. This risk has an effect on the valuation of assets

22

and liabilities in financial statements. Additionally this effect must be described in the notes of consolidated financial statements that are analysed in this thesis. The accounting effect occurs because no prices for certain financial instruments were provided by the financial markets. To substitute the prices companies relied on mathematical models for the valuation of their investments. Consequently investors need to be aware of the risk that the valuation of investments might affect the financial results of the insurance companies. Coval et al. (2009) point out a characteristic of the recent financial crisis that a small error in the assumptions to measure structured financial instruments can lead to a great misinterpretation of their probability of default. According to IAS 1 par. 118 (IASB, 2003) `it is important for an entity to inform users of the measurement basis or bases used in the financial statements because the basis on which an entity prepares the financial statements significantly affects users analysis'. Therefore, the measurement assumptions of financial instruments are important factors that need to be disclosed to investors in order to enable them to evaluate the likelihood of a decrease of the investments' fair value and the value of the company.

2.3. Relevance of risk disclosure for future accounting standards

This subchapter defines risk disclosure specific to the crisis situation analyzed in this thesis. The relevance of risk disclosure in the context of upcoming International Financial Reporting Standards (IFRS) is demonstrated.

In the accounting literature there is no definition of crisis that relates to the overall
economic situation. From an accounting point of view a crisis is specific to the individual situation of the company and the resulting risk situation is defined by Rejda (1998) as a significant deviation from the expected outcome of a prediction. Risk therefore has a company-specific aspect because expectations vary from company to company. To broaden this definition and to ensure a comparability of risk disclosure by companies an extended risk understanding needs to be considered than that one of is This includes information that required and that companies rules. risk accounting provide voluntarily in excess of rules. In order to be comparable risk disclosure can

23

only be analyzed from companies within the same industry, with similar business interests and a comparable business structure.

In the following the relevance of empirically researched risk disclosure for the implementation of future accounting standards is described. To distinguish between risk disclosure as the research subject and risk accounting as a subject of future regulation by international accounting standard setters these terms are subdivided by following definition:

Risk disclosure in this research study is defined as all information disclosed by insurance companies, whether required by German national or international regulations or voluntarily disclosed, that reveal the financial situation of investments and their measuring process as well as the future view on corporate positions of risk and chances. Risk disclosure takes place predominantly in a qualitative form. When quantitative risk is disclosed it does not have to affect the balance sheet or the income statement in order to meet this definition. The definition of risk disclosure for the purpose of this thesis differs from the one by Vielmeyer (2003). His general definition of risk disclosure based on required accounting information should be extended and specified in so far as risk disclosure contains risk information that companies give above the required level as well, and it should include information that is specific to the changing risk situations of a financial crisis situation. Risk accounting can be defined as all information disclosed by insurance companies, required or discussed by German national or international regulators, that reveal a historic, actual or future view on corporate positions of risks and opportunities. This definition meets market valuation of balance sheet items, quantitative as well as verbal explanations on certain types of risk in management reports and business forecasts embedded in financial statements. Risk accounting includes the aspect of valuation of obligations arising out of insurance contracts that is discussed in upcoming international regulations on insurance contracts (IFRS 4 Phase II). Risk accounting therefore has an effect on the income statement and on the balance sheet. A subpart of risk accounting is fair value accounting. It includes the market valuation of investments and obligations with effects on equity and profit and loss accounts it is line indicator. However, (2007) Penman to one risk not required by as an according

24

today's accounting standards but included in standards that are to be applied in the future.
Results of this thesis might be useful to support companies that extend the disclosure of their risk positions because it may be rewarded by the capital market. Such voluntary risk disclosure might convince standard setters to pursue fair value accounting as an one line risk indicator (Penman, 2007) which results in higher transparency on risk instead of historic cost accounting that hides the effects of risk. Can existing research studies help to predict how the disclosure of additional risk information, as required by fair value accounting, affects listed companies? A study by Pape and Schlecker (2009) analyzed the effect of a crisis situation on credit default rates as an insolvency proxy depending on the accounting regime of the companies. Based on a 1998 crisis it found out that companies with fair value accounting are not considered to have a higher possibility of insolvency, although they disclose risk information to a higher extent than companies following historic cost accounting. Empirical research by Chamberlain and Magliolo (1996) supports this idea by finding out that fair value accounting and the accompanying disclosure of risk does not negatively affect share prices of insurance companies. Although no positive causal relationship between the form of accounting and the companies' capital market performance could be found by Chamberlain and Magliolo (1996) the statement by the FASB (2001) that the importance of disclosure is expected to increase in a changing business environment affected by the credit crisis is a starting point of this thesis. The result of this chapter 2 is as follows: Due to its characteristics the insurance industry as a pool of investments and a guarantee provider with a long term investment horizon is especially sensitive to changes in the fair value of investments that are at the heart of the researched financial crisis. Investors in insurance companies demand risk information that can be compared between companies. Therefore, risk information required by German national and international accounting standards as well as voluntarily extended by insurance companies are recognized and measured in this thesis. The results of this thesis on the disclosure of sensitive risk disclosure can be used to predict behaviour of insurance companies in their future application of full fair

25

value accounting. They can provide clues for regulators about how to spread sensitive risk informationthat is relevant to investors in a crisis situation. The following literature review analyses theoretical and empirical studies on the communicationand relationship between companies and the capital market. It thereby demonstrates different ways to measure corporate risk disclosure in order to find implicationsfor the research methodology.

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Chapter

3. Literature Review
This research analyses how companies disclose information. This is done because Lenz and Diehm (2010) state the prognostic value assumption that investors can predict the financial effect a crisis has on a company based on its risk disclosure. There is a consensus in management literature how companies in crisis situations should act concerning disclosure. They should provide accurate information as quickly as possible to stakeholders according to Dillenschneider and Hyde (1985) as well as Sellnow and Ulmer (1995). Such disclosure behaviour of companies increases the credibility of organizations (Williams and Dolnik, 2001). Empirical research by Arpan and Roskos-Ewoldsen (2005) shows that the credibility of an organisation influences the behaviour of people that receive negative information about the company during a crisis situation. In such a crisis situation an organization shall therefore "break the news about its own crisis before it is discovered by the media" or investors (Arpan and Roskos-Ewoldsen, 2005, p. 425).

According to this thesis insurance groups should have disclosed every risk associated with their financial instruments that are based on mortgage portfolios already at the beginning of the financial crisis in 2007. They should have used every possibility to include new risk related information in their group financial statements 2008 as knowledge about the extent and its effect on each insurance group evolved.
The reason to research risk disclosure in crisis situations is the ongoing discussion about fair value accounting in the insurance industry as a requirement to disclose sensitive information in financial statements. The fair market value of insurance assets and insurance obligations would disclose a true and fair view on the financial strength of the insurance company at year or quarterly end. Such disclosure would reveal operational and financial risk by fair value measurement and would empower investors to consider this risk in their investment/divestment decisions. However, since fair value measurement has only been partially implemented and might be fully applied only in future international accounting regulations, the capital market effects of other forms of

27

risk disclosure - in this thesis risk disclosure about mortgage portfolio based financial instrumentsduring a crisis - are analyzed in the following literature review.
Disclosure research can be subdivided in theoretical and empirical studies. Both types of studies have been undertaken to describe the quality of disclosure (AICPA, 1994 and PWC, 2006), to measure and compare it (Armeloh, 1998 and Vielmeyer, 2003) and to create and verify economic models that assume a relationship between disclosure of companies and the capital market reaction (Verrecchia, 1998, Botosan, 1997,2002 and Sengupta, 1998). It has to be acknowledged that literature agrees to the statement that the capital market is affected by multiple factors and not only by the publication of financial statements and other reports. Researchers critizise that single researchers expect too much from disclosure to explain capital market reactions (Dobler, 2008) and that models used to explain this relationship are too simple with too many restrictions and assumptions (Healy and Palepu, 2001).

This is recognized in the following literature review. This part of the thesis focuses on exploring cause and effects between risk disclosure and capital market reactions and thus to improve the research design. Based on the definition that accounting is a social system that consists of norms and determinants of behaviour (Harrison and McKinnon, 1986) the influencing factors of this relationship are analyzed as proven significant and later included as variables in the research design. As the research objective is to find and define the relationship between disclosure and the behaviour of capital market participants and analyse it during a time of market distress, the literature is classified in a way that clarifies the interdependencies between regulations, companies and investors. This structure is recommended for research on causal analysis (Mbengue, Vandangeion-Derumez, 1999) and has been used in one of the leading research contributions to the topic by Vielmeyer (2004). It is a three step structure that has been introduced by Verrecchia (2001) and adapted to the research topic of company's disclosure. This given structure is extended by one additional step, because in a crisis situation additional factors influence the behaviour Verrecchia in the that the of not recognized study participants are market capital of (2001). These factors have not been coherently analyzed in previous disclosure instead they because economic environment of a crisis constant assumed a research 28

situation. In this additional step the psychological and economic theories about the behaviour of capital market participants are analyzed. As a result of this extension the literature review is subdivided into four steps:
In a first step the theoretical explanations of communication between companies and the capital market that build the relationship between them are described. Followed by a review of empirical studies on this topic a distinction is made between required and voluntary risk disclosure (Core, 2001, p. 443). In addition literature on corporate disclosure measurement and attempts to specify it to situational risk instances are documented in chapter 3.1.

In a second step the incentives for the company to disclose information are analyzed. Why do companies invest in the cost of better disclosure and have managers and their
companies a common motivation to disclose information? Theoretical and empirical studies on these aspects are analyzed in chapter 3.2. Why do financial market participants demand disclosure is the third step and how does this demand alter in times is the forth - additional - step both described in chapter 3.3. The behaviour of financial market participants can be explained with economic models that assume a rational investor. This assumption is critical during a market crisis situation. A more adequate way to explain the behaviour of market participants is to take psychological aspects of behaviour into account. In substitution or combination with rationality it can be assumed that investors are influenced by two opposing emotional factors in their financial decisions under such circumstances. With trust through timely and extended risk disclosure companies can build up a reputation that might lead the investor to hold on to its shares during distress in the market (Vater et al, 2008, p. 2606). The opposite psychological factor of trust is fear that might induce investors to be influenced by the behaviour of other investors, who sell their shares. This effect caused by opinion leaders like analysts might lead to a mass flight out of shares, a reaction undesired by the disclosing company. This crisis specific adaption of the general approach by Verrecchia (2001) is specific to this thesis.

As a result of the literature review the research design should be predetermined with the unit of analysis, all relevant variables that affect investment / divestment behaviour
29

of capital market participants and that affect the risk disclosure of listed insurance
companies and the measuring procedures of the variables. As far as the information being relevant, measurable, publicly available and adjusted to the recent crisis situation they are included in this thesis and described in chapter 5 "Research Methodology".

3.1. Communication market

between companies and the capital

This chapter analyzes the communication between companies and the capital market. Theoretical approaches in chapter 3.1.1. and empirical research studies in 3.1.2. are
structured in order to analyse how they can be used to specify the research design.

In order to analyse to what extent companies can exceed the expectations of the capital market with their disclosure it must be known what level of disclosure is required by regulations.After analysing the legal accounting requirements on German national and international level it is examined how insurance companies can fulfil or
exceed these requirements in chapter 3.1.3. These steps are prerequisites to determine the group of analysis which can be defined as insurance companies that are similar enough to be compared in this thesis.

Subchapter 3.1.4. examines how risk disclosure that occurs in different forms like earning announcements,or forecasts and in different parts of the financial statements can be confined to this crisis situation.

3.1.1. Theories on communication

According to Healy and Palepu (2001) a relationship exists between investors and disclosing companies. How this relationship functions and what cause and effect models can be drawn from it is in the centre of disclosure theory. To analyse causal relationships researchers focus on the addressee of disclosure information and on the

disclosing companies. They disregard standard setters who stipulate form and content of the communication (Vielmeyer, 2004). This is considered as the influence of standard setters in changing accounting standards in chapter 3.1.2.

30

Disclosure theory intends to explain and predict accounting practice. The structure to solve this task is universal, the theoretical underpinning differs and the conclusion about the application of these theories in research is surprising.
Theories try to explain the overall relationship (Watts and Zimmermann, 1978 and 1986) (Blackwell and Girshik, 1954) whereas empirical studies focus on certain decisions investors or companies can make within that relationship. Nevertheless, the predictive power of theories is restricted due to the variety of assumptions and restrictions connected to them. The general idea is that additional disclosure is appreciated by investors based on the assumption that every additional information can be analyzed and integrated in the decision making process of the investor (Blackwell and Girshik, 1954). Lenz and Diehm (2010) specify this theory to crisis situation. They state that crisis relevant information disclosed by companies helps the investor to predict the effect such crisis has on the fair value of the company he is invested in. This theory is summarized as the prognostic value assumption. Another is that theoretical models every communication between all assumption of significant investor and company is based on contractual forms of relationship and therefore regulated (Watts and Zimmermann, 1978,1986). But this does not hold true to crisis situations with information demands of investors changing on a daily basis and companies using other, often unregulated forms to communicate to them.

Thus, the conclusion by Vielmeyer (2004) can be supported that the question whether or not additional disclosure is beneficial for investors cannot be conclusively answered and should be tested empirically. Such empirical research might provide useful insights and allow crisis related adaptations of the research methodology.

3.1.2. Empirical research on communication

Empirical studies on disclosure research vary in their focus. They explain the regulatory situation as well as predict and empirically verify behaviour of investors or companies vis--vis various aspects of accounting and risk. Therefore, the focus of this research study is on empirical research that covers capital market reactions to regulatory changes as well as on empirical research between the communication of companies and capital market reaction towards it.

31

Various empirical studies analyse capital market reaction to changes in accounting rules. Studies by Gonedes and Dopuch (1974), Leftwich (1981), Barth (1994) and Barth et al. (1992) tried to forecast share market performance of companies which are affected by regulations that require fair value measurement of assets to different degrees. Their results can be summarized that no share price reaction takes place unless the adoption of new accounting regulations cause a change in real cash flow. Other studies by Barth (1994) and Cornett et al. (1996) contradict these findings when researching the share market effect of US-Banks that were required to disclose additional fair value information in their financial statements. They found out that upcoming regulations that require additional disclosure on fair value and risk

connected to financial instruments have statistically significant effects on the banks'

share performance.
Thus upcoming accounting requirements shall be eliminated as an irritating factor from the research design. Therefore this research study shall only be performed during a period of time when accounting regulations did not change in regard to financial instruments such as during the period from January 2007 to March 2008.

Empirical studies on the communication between companies and the capital market can be distinguished according to their research method in three categories (Armeloh,
1998), i.e. descriptive, comparative and marked related studies. The first category of empirical research is descriptive. Studies that describe what kind of information investors demand (AICPA, 1994, PwC, 2007 and EFRAG 2009) or what information companies provide after certain regulations have been changed are performed by auditing companies (PwC 2006 and Ernst & Young 2009) or academics (Freiling and Wehrle, 2008 and Krger et al. 2008). In respect to risk disclosure these studies explore to what degree new international accounting regulations such as IFRS 4 and IFRS 7 are applied by listed companies.

Empirical studies that measure and compare disclosure are in the second category. Central to these studies is the necessity of an indexation that enables researchers to measure and compare the disclosure performance of companies. Most of these studies apply indices that are based on classes specified in accounting regulations.
32

These classes are weighted and integrated in an index. This index is applied to measure disclosure and summarizes the results in a single number that is then used to rank companies according to their disclosure performance. The way the disclosure classes are weighted can be used to distinguish these empirical studies of the second category. Empirical studies on risk disclosure predominantly use indices that are based on subjectively weighted criteria (Bungart, 2003, Kraft and Nolte, 2005, Kirchhoff, 2007). Only two empirical disclosure studies by Armeloh (1998) and Vielmeyer (2004) are based on objectively weighted indices. In order to achieve it these two researchers collected the preference of users of financial
statements about the decision usefulness of disclosure classes via surveys. This required quantitative research using questionnaires that were sent to analysts, auditors (Armeloh, 1998) and additionally to preparers of financial statements (Vielmeyer, 2004) in the process of their individual research projects. A sub-group of these empirical studies uses disclosure indices with objectively weighted classes provided by institutions. An index by AIMR frequently used in the literature until it has been discontinued was a ready available disclosure index with a country focus on USA. The advantage of this disclosure index has been that it was easy to use for statistical correlations with variables the represent capital market reaction such as cost of capital (Sengupta, 1998) or credit default swaps (Healy et al, 1999).

The third category of empirical research studies extends the measurement of disclosure quality and analyzes its effect on the financial market. Whereas empirical studies of the second category are predominantlywork of German researchers caused
by the lack of ready to use indices by institutions such as AIMR in the USA empirical studies on the market effects of disclosure are performed by American researchers in particular. Studies of the third category use the widely published but discontinued index by AIMR which is objectively weightend (Welker, 1995, Healy et al, 1999, Sengupta, 1998) and in more recent empirical studies subjectively weightend indices (Botosan, 1997,2002), (Bloomfield and Wills 2000).

After the categorization of empirical research studies two aspects turn out to be followed on in order to compare risk disclosure performance in this thesis. The disclosure regulations that are crisis relevant must be described in the first category.
33

T This is done in chapter 4.3.2. to create risk disclosure criteria. The other prerequisite for further empirical research is to measure and compare risk disclosure performance. To apply it is a major difficulty and a limitation to research studies in this research field according to Healy and Palepu (2001). Two methods have been used in empirical research studies to measure financial transparency: administered indices. External indices have been created by financial analysts or rating agencies. US-based research by Sengupta (1998), Lang and Lundholm (1996) and Zarowin and Gelb (2002) used the published disclosure quality index of the Financial Analysts Federation (FAF), a branch of the Association for Investment Management and Research (AIMR) later renamed CFA-Institute. However AIMR discontinued its disclosure ranking in External indices and self

1997, after ranking fiscal year 1995 (Core, 2001). No replacement of this US-oriented
Even by Shaw (2003) relies on index is in disclosure recent a study sight. external these historic data, using FAF disclosure quality scores of the years 1985 - 1989. The Standard & Poor's Transparency and Disclosure study United States (S&P, 2002) used to analyze companies from Asia-Pacific and Europe by Khanna et al. (2004) was not continued after being published for the first time. The index of the Center for International Financial Analysis Research (CIFAR) has been used by Hope (2003) but has been discontinued as well. Faced with the lack of external indices Hussainey et at. (2003) suggest a self constructed index approach for future researchers in lack of AIMR data for further studies.

Self administered indices are developed by the researcher and requires to weight and integrate the disclosure criteria. In order to operationalize these type of indices they are processed into a check-list that is applied to analyse and compare published financial statements. Yet to apply these auditor type check-lists to individual financial statements is labour-intensive so that annual transparencies studies have been either discontinued (Daske and Gebhardt, 2006), or applied only to small samples (Core, 2001).

Self administered indices of overall disclosure performance have been used by Botosan (1997), Armeloh (1998) and Miller (2002). Armeloh (1998) presents an extended and widely followed approach to create such a self administered overall 34

disclosure performance index for German companies. Based on the opinion of auditors and analysts he developed a disclosure check-list which he used to evaluate the qualitative information disclosed in management reports of German companies included in the national share index, Deutscher Aktien Index (DAX) during the 1995 fiscal year. But the content of that past index cannot be used today because accounting requirements have significantly changed from German national to international accounting standards for listed companies in Germany within a decade. His research work is the basis of the only external disclosure index published over last two decades and still continued in Germany. The German periodical "managermagazin" has sponsored the work of 40 researchers who annually evaluate qualitative data in the financial statements of DAX-and MDAX listed companies using a check-list approach since 1994 (D6hle, Manager Magazin 2004,2005,2006. ). The check-lists that are used by these researchers are published ahead of their annual examination process. The check-list is adapted to several industries every year, including the insurance industry. An alternative academic approach to administer a disclosure index by the German periodical "Focus-Money" was discontinued in 2004 (Daske and Gebhardt, 2006).

Self administered indices that focus on risk disclosure have been applied by Kajter (2001), Kajter and Winkler (2003), Bungartz (2003), Vielmeyer (2004), Kajter and Winkler (2004), Gleiner et at. (2005), Berger and Gleiner (2007) in studies that focus on risk disclosure in Germany and Botosan (1997), Botosan and Plumlee (2002) as well as Khana et at. (2004) in international studies. Although such a variety of studies exists only recent studies by Kraft and Nolte (2005), Freiling and Wehrle (2008) as well as Filipiuk (2008) include or focus on the risk disclosure of insurance companies. Due to the lack of self-evident criteria to categorize risk disclosure and no dominant qualitative studies to weighten risk disclosure categories researchers suggest a check list that leads to an index. Luo et al. (2006) suggest to include criteria by auditors and review relevant literature to include those in the check list in addition to the legal requirements. Clustering these criteria in risk disclosure classes will result in a self constructed index. Hussainey et al. (2003) suggest to use key words from analysts reports in order to find categories of risk disclosure quality in self administered indices. 35

Lacking research to weighten risk disclosure criteria subjective ways are needed to fill this gap.

This, nevertheless, would induce bias. To reduce bias Cheng and Courtenay (2006) recommend statistical calculations to test self constructed indices for internal consistency. This could be performed by comparing the results of self administered indices with external indices or alternatively by the verification of subjective

assumptions by external experts. The most promising attempt to create risk disclosure criteria is suggested by Ktzle and Grnung (2009) who consider risk disclosure as a response to external regulatory pressure and market incentives. They suggest to discuss risk disclosure performance on the basis of regulations.

Empirical research on how companies actually comply with legal regulations are subdivided according to two time periods. Before 2006 only listed German companies were required by German national regulations to disclose risk related data. After 2006 the introduction of an international accounting standard (IFRS 7) and its uniform application since 2007 made the requirements uniformly applicable to European listed companies and therefore enlarged their risk disclosure. Research on disclosure in financial statements before 2006 became standardized with the research by Armeloh (1998). Although this research study was neither insurance specific nor focused on risk disclosure it became the standard on how disclosure quality should be measured in the future. However this standard could not be applied directly to risk disclosure. The first risk disclosure related empirical study by Bungartz (2003) created one self administered index that included corporate governance information that Bungartz applied in his empirical work. His work is critizised by Dobler (2004) for insufficiently explaining his subjectivly weighted criteria that were integrated in the index.

Vielmeyer (2004) improved the methodologicalapproach and created "RDScores" (risk disclosure scores) to rate individual risk disclosure performance.Vielmeyer defines risk disclosure criteria according to the requirements of the German accounting regulation GRS 5-20 that set the risk disclosure of German insurance companies in the time before 2006. He weighted these criteria on the opinions of analysts, auditors and
36

preparers in order to achieve objectively weightend criteria. Similarities to "Dscores" by Botosan (1997) and Botosan and Plumlee (2002) as scoring modules that include a longitudinal research approach on risk disclosure based on a ten year historical performance review, forecasted infos and management report information provided in the annual reports of companies. But the resulting risk disclosure index was based only on companies from the machine-manufacturing industry (Vielmeyer, 2003).

Vielmeyer's research influenced further work on risk disclosure in Germany by Kajter and Winkler (2003) and was applied to the German insurance industry by Kraft and Nolte (2005). The later empirical studies of this period show weaknesses of measuring disclosure performance using rather simple criteria such as the number number of keywords or pages of the risk report. Additionally these empirical studies were all restricted to Germany.

Research on measuring and comparing risk disclosure after 2006 envisaged IFRS 7a new international accounting standard, which requires specified risk information from listed groups in their consolidated financial statements. Instead of analysing the disclosure in a country specific way the new regulation allowed research on companies from different countries that all require IFRS accounting. These studies could not find a common opinion about the improvement this standard provided to risk disclosure. Krger et al. (2008) state that risk disclosure is even less informative in regard to forecast information with the application of IFRS 7. However this research result was based on financial statements of smaller listed companies. It is most probable that these companies have not applied IFRS 7 coherently at the time the study took place. The reason for this incoherence could be that IFRS 7 has been new at the time of the study. First time adoption of the new accounting standards could be worsen by lack of appropriate information on the side of disclosing companies. Krger et al. 2008 findings are supported by research from Ernst & Young (2009) on companies which comply with IFRS 7 in terms of risk disclosure that reveals that the disclosure requirements are only partly met in 2006. On the other hand research by Freiling and Wehrle (2008) about the ten biggest insurance companies worldwide, that apply IFRS in their 2007 financial statements comes to the conclusion that due to the introduction of IFRS 7 and the insurance specific IFRS 4 risk information is more useful to financial decision makers and can be employed by them in their financial decisions. 37

Summarizing it can be stated that risk disclosure improved due to IFRS 7 in 2007 and from there on. As European listed companies are required to apply IFRS the group of analysis researched in this study can include listed European insurance groups in the period 2007 and after that apply IFRS 7 uniformly in their annual group financial statements. A self administered index can be based on the categories of IFRS 7. But to weighten these categories can only partially be based on the survey supported check-list by manager magazin. As a result of this chapter it can be stated that theory cannot fully explain the communication between companies and the capital market. Empirical studies explain only single aspects of the communication. Important conclusions can be drawn from these studies in regard to the measuring procedure of risk disclosure. Risk disclosure must me measured and compared using IFRS 7 accounting requirements in order to create a self-administeredindex, due to the lack of a risk disclosure index provided by
institutions. Existing insurance specific check lists that are based on German national IFRS in to 7 be addition requirements. used should requirements accounting

3.1.3. Forms and legal requirements of risk disclosure

The purpose of this chapter is to find and operationalise categories of risk disclosure that are relevant to the researched financial crisis. In order to achieve this, risk disclosure is categorized and compared in the form of German national and international accounting requirements, respectively GRS 5-20 and IFRS 7. The goal of this chapter is to find risk disclosure requirements that are useful to investors based on their preference analyzed in chapter 2.2. They can be used to build a risk disclosure performance checklist that is the basis of a self administered risk disclosure index as an integral part of the research methodology. Disclosure of information by companies can take place in formalized or unstructured

ways. Formalized ways include annual / quarterly financial statements and ad hoc statements that are disclosed to the public and are available via internet. These
statements related to German national regulations such as HGB, RechVersV and WpHG, are supplemented by German national regulations such as GRS 5-20 on risk

38

reporting for insurance companies and GRS 15 on management reports and extended by international financial reporting standards specified IFRS 4 and IFRS 7.

Unstructuredways of communicationare calls to key shareholders, road shows by the management, investor days, statements during the annual shareholders' meeting and talks to rating agencies. These forms of communication are not regulated or like the shareholders' meeting only regulated concerning the sequence.
Risk related information can also be disclosed in formalized or unstructured ways. Management is required to describe prospective risk situations such as transactions that might have an unexpectedly high negative result and thus might threaten the existence of the company to their shareholders at the annual meeting (Kiethe, 2003). But such kind of unstructured risk related information about conversations to key shareholders are not disclosed. Information from the annual shareholders' meeting are open to the public but not documented. Ad hoc statements are disclosed and documented. Conference calls investors and experts take part in and can ask questions to the management have not been uniformly documented in the past. They tend to be documented temporarily on the internet platforms of the companies. Nevertheless, content and form are individual to each insurance group.

The content of the balance sheet, profit and loss accounts, cash flow statement and equity statement as the major parts of the financial statements that disclose risk is formalized. But risk is preponderant future oriented and consequently not reported in such historic, back looking statements. According to the results of chapter 2.3. not all information disclosed is relevant to investors in a crisis situation. Especially, information on investment risk in its three forms of market risk, credit risk and liquidity risk as well as measuring risk of crisis relevant mortgage portfolio based financial instruments and statements about the forecasted performance of companies can be considered relevant to investors. Therefore, the requirements to disclose these five information elements are analyzed.

In the following international accounting requirements are stated on the previously defined areas of risk disclosure. The purpose of this comparison is to select relevant criteria that can be included in a check-list in order to measure the risk disclosure 39

performance of listed European insurance groups in their consolidated group financial statements during the financial crisis. The legal basis of this comprison are

international requirements [AS 36, IAS 39 and IFRS 4, IFRS 7. As far as they do not sufficiently specify the areas of risk disclosure German national requirements

RechVersV, HGB, GRS 5-20, GRS 15 are used in a supplementary way.

The comparison starts with the market risk. It occurs when the fair value of assets in the balance sheets drops. As a consequence listed European insurance groups are required to disclose the fair values in their financial statements. Depending on German national and international accounting regulations the disclosure of the assets fair value vary in their degree.
Whereas 54 RechVersV requires the disclosure of the fair value for all investments of insurance companies, the international accounting standard IAS 39.45 requires the fair value of the categories "available for sale" and "designated at fair value" to be "loans "held to in Assets the and maturity" categories and receivables" are published. in balance the fair disclosed their neither sheet nor in the notes. values with not German national requirements to disclose the fair value of all investments in the notes exceed the fair value disclosure of international ones. Another important risk information for investors is the likelihood of a drop in fair values of investments. This information is based on scenarios that the company predicts, the consequences for the investments held by the company and are summarized in a quantified risk information in the company's notes. German national and international accounting requirements differ in how the quantified risk information must be disclosed. IFRS 7.39D together with 7.40 requires a sensitivity analysis that tells investors how the company is exposed to the market at the end of the financial year according to Rockel et al. (2005). To do so international accounting standards require that the effect of a drop in fair values on the profit and loss accounts as well as on equity must be disclosed. Additionally the assumptions and method used by the management to prepare such a sensitivity analysis must be presented to the investor in the notes. GRS 5-20.29f as the German requirements does not specify the method used to measure and summarize the market risk.

40

Yet the method used must be a recognized risk-monitoring method such as sensitivity analysis or stress test. Both types of regulations allow alternatives: If the risk cannot be quantified by management GRS 5-20.31 requires the disclosure of the profit and loss accounts and equity effect of a given scenario. The German regulation is a 20% reduction of fair values on shares and non-fixed interest securities and a1% shift in the interest curve on the market value of fixed interest securities and bonds. International regulations on the other hand do not require the disclosure of a given scenario but demand reason about why the management has been unable to apply a sensitivity analysis and why the analysis does not make sense according to IFRS 7.42.

The market risk that investments are exposed to must be disclosed in a similar way
according to national and international regulations. Both kinds of regulations require a quantitative risk information that is based on scenarios. These scenarios quantify the market risk of a company's investment. Nevertheless, different methods on scenarios and the exemption clause in IFRS 7.42 make it harder to compare corporate risk disclosure on market risk according to Rippel (2006). Therefore international accounting requirements are used as categories in the check-list. The exemption clause should not be considered acceptable in that check-list.

The regulations on credit risk as part of investment risk are analyzed next. During a prolonged financial crisis bond issuers default on their payments. This credit risk significantly affects the financial performance of insurance companies that have to record these defaults in their financial statements through depreciation of their investments.
German national and international accounting regulations share the duty to disclose credit risk disclosure as of GRS 5-20.32 and IFRS 7.34a respectively. However the German national requirements allow as an alternative when the management is not able to provide a quantification to disclose external disclosure categories of fixed interest securities and bonds. It cannot be concluded that IFRS 7.34a together with B7 do require a quantification of the credit risk, so that qualitative about external ratings of investments can be deemed as comparable in regard to the information usefulness of investors. International accounting regulations surpass German national ones when

41

they demand the maximum credit exposure from financial guarantees granted in insurance contracts in IFRS 7.36 according to Rockel et al. (2005).
Comparing both types of regulation it can be concluded that German national requirements are less specific about the form. The information usefulness of the information differs however, when a qualitative risk disclosure as an alternative to the quantitative disclosure is chosen under German national regulations. This informative difference is enhanced by the requirement of IFRS 7 to state the quantitative figure of maximum credit exposure without risk reducing transactions being considered. Because of its focus on quantitative risk information international regulations are far more strictly than the German national ones (Rippel, 2006).

Liquidity risk as another subgroup of investment risk affects especially insurance groups with a life insurance segment that guarantee a certain interest to their customers and cannot receive this level of return from their investments when a financial crisis decreases their value and returns. German national and international requirements on liquidity risk are specific to the insurance industry. According to GRS 5-20.26c information about the cash inflow of investments and the matching of cash outflows from obligations based on insurance contracts must be provided. Similar to this German national regulation these cash inflow and outflow

information must be provided according to the insurance industry specific IFRS 4.38. The specification of IFRS 4 IG 61 for a sensitivity analysis of equity and profit and loss accounts on the effect of a change in those factors that influence the liquidity of an
insurance company most is only a recommendation.

The comparable level of liquidity risk disclosure has been amended in March 2009 with an IFRS extension (IASB, 2009a). As a reaction to the financial crisis a maturity analysis of all financial liabilities and assets as well as a description how this analysis has been calculated has been added by a modified IFRS 7.39. The transparency of outflows by the settlement of insurance based obligations has been improved by the required disclosure of the earliest demand point of time outstanding insurance based guarantees. Guarantees as off-balance items have not been included in the liquidity risk disclosure based on the previous IFRS 7.39. Additionally the IFRS extension 42

required that all significant deviation from earlier cash-outflow plans that have been caused by the crisis must be disclosed according to the modified Appendix B of the

Application Guidance to IFRS 7.

Both German national and international regulations require quantitative information about how insurance companies tune future cash in- and cash outflows. The biggest improvement of decision usefulness to investors are the amendments to international regulations (IASB, 2009) that require additional information on how the crisis changed the liquidity risk. Yet, the amendments are requested for financial statements form 2009 onwards and are not be considered in this research which is based on the 2007 and 2008 consolidated group financial statements.

This

financial

crisis

affects

markets

that

measure

investments

but became

dysfunctional as an effect of the financial crisis. Regulations on the disclosure of this measuring risk of investment products held by insurance companies vary. Transparency on how the value of these products is measured is significant to investors in times of financial distress to make well informed financial decisions. The requirements of German national and international regulations before the IFRS extension have been similar requiring qualitative information about the measuring methods for financial investments and certain significant financial obligations according to 56 (6) RechVersV and 268 (5) S. 3 HGB as well as IAS 1.108 together with IFRS 4 IG 11. The extension of IFRS in response to the financial crisis and the possibility to reclassify financial assets to other categories required the disclosure of profit and loss account as well as equity effects caused by this change. This requirement for disclosing measuring risk is a positive indication that a listed European insurance group utilized the reclassification extension. The way investments are measured must be described according to German national and international regulations. This requirement is critical for investments that are not priced by markets because the financial crisis led to significant variances on investments that had to be measured with mathematical methods based on data form inactive markets. Therefore the information usefulness of international regulation in regard to measuring risk is significantly higher if reasons for insecurity of measuring 43 opportunity provided by the IFRS

models are disclosed. The disclosure of the effect of recategorization can be used as an indicationfor insurance groups facing financial distress during the crisis. A last element of this comparison is the future oriented information.This is relevant in a crisis situation, because it relates to the characteristic of the long term perspective of insurance companies. This risk disclosure can have different forms in group financial statements prepared under different accounting rules.
A separate risk report that includes risk related and forward looking statements is embedded as an individual statement of financial statements in Germany. In the UK and the US risk related data are disclosed as supplemental information to the balance sheet and profit and loss accounts as part of the notes. The same holds true under international accounting standards. This difference in form can be attributed to the standard setting institutions. The German management report (Lagebericht) the

operating and financial review (OFR) in the UK and the management report named MD&A in the USA are similar in their function but differ in detail (Hartmann, 2006). Their regulation density is high and they are set up and enforced by national bodies.

The German management reports stick out in their management forecast requirements.The management report became an instrument with special legal status. It extends the historic information, processed in the financial statements to include
future events by delivering a forecast (Lange, 2001). The forecast requirement was specified and extended by modifications of the German Commercial Code in 1998 (KonTraG) and 2004 (BiIReG).

These requirements based on German regulations do not have the legal status of law but are set by a private standard setter acknowledged by the Finance minister, the German Accounting Standard Board. The management report is a unique source of information specified by the regulations GRS 5-20 and GRS 15 (GASB, 2001). The mandatory part of the management report requires companies to disclose risk

connected to their business activities within the next two years (Grfer and Scheld 2005). The German regulations specify risk disclosure categories and adapt them to banks and insurance companies. The required disclosure can be either based on

44

individual risk measuring methods created by the company or by more robust set up as-if-predictions. Internationalregulations on the other hand came in late and do not require a separate report. The IASB released the IFRS 4 Insurance contracts in 2004 and IFRS 7
Financial instruments - Disclosure in 2006. The legal status of the risk disclosure requirements is disputed. The disclosure specifications are not part of the legally binding standard, but part of the implementation guide.

The project of the IASB to draw up a standard on management commentary as a separate report has developed. An exposure draft as a step ahead of a final accounting standard has been published (IASB, 2009c). The reason for being late in comparison to German national requirements might be that the IASB has to cope with different national backgrounds on risk disclosure and lacks a common enforcement institution. The IASB followed another approach instead and requires companies to disclose risk related information about their financial instruments as supplemental information in the notes instead of a cohesive report. Because they can become a dominant risk factor for a company, IASB issued IFRS 7 disclosure of financial instruments in 2006 to be applied from 2007 onwards and the industry specific IFRS 4 Insurance contracts in 2004 to be applied from 2005 onwards. Later standard requires the disclosure of insurance specific risks. Together they build the regulative framework for listed insurance companies on risk disclosure.

Both standards and the resulting risk disclosure must be applied by listed German insurance companies and are enforced by their auditors. European listed companies have been required by EU regulation No. 1606/2002 to account according to IFRS since 2002.

It can be summarized that the form of risk disclosure required by German national and international regulations varies. In order to compare the risk disclosure performance of European companies a level playing field has to be established. German insurance group had to comply with more demanding risk disclosure requirements especially in the past. Other listed European insurance groups can close this disclosure gap by

45

voluntarily publishing relevant information in their group financial statements according to IFRS accounting rules.
Forecasts allow investors insights on opinion of the management about the effects the crisis has on the listed European insurance group and tells them what plans the managements came up with to pursue their plans. Contrasting the German national and international regulations the first mentioned ones require the disclosure of expected developments, negative trends, significant assumptions made by the management. A very demanding requirement of national German requirement GRS 15.84 is that the management must forecast significant risk for the following two years. The risk shall be quantified in the management report according to GRS 15.89.

Penman (2007) regards this information as a single risk indicator with superior decision usefulness for investors. However by a recommendation of the German regulatory body this requirement has been lowered in response of the financial crisis when the uncertainties are too high. Additionally auditors (PwC, 2009) and regulators (GRS, 2009) diluted this requirement for the then ongoing financial crisis. This recommendation did not let the companies off their duty to forecast in a qualitatively way. This requirement has been critizised after the crisis of being unrealistic in times of crisis by Schwab (2010). However this requirement has been upheld by a German district court for public companies that are listed in the German share index (Schwab, 2010). In contrast to the German national requirements to quantify a forecast for a specified period of time in the future no such one exists according to international accounting standards.

German national and international requirements require similar levels of disclosure about current risk, both requirements allow a qualitative description of risk. When GRS 5.26 recommends to describe interdependencies between individual risk, IFRS 7.34c requires the management to describe the concentration and extent of risk that arises from financial instruments with similar structures. In regard to current risk international requirements are more specific by focussing on financial instruments whereas German national requirements stress the disclosure of interdependencies without a clear focus on specific assets. In regard to the crisis situation IFRS 7 seems to be a requirement

46

that provides investors with more specific risk disclosure although it is only qualitative and thus not preferred by them according to AICPA (1994) and EFRAG (2009).
Another similarity between the requirements can be found regarding risk that threatens the existence of the company. Such risk shall be disclosed according to German requirements as of GRS 5.24. [AS 1.23 requires the disclosure of liquidity risk that may threaten the existence of the company, as far as they effect the going concern assumption that is vital to the measurement of assets and liabilities in the balance sheet. The German national requirement is specified in the time frame when it states that the forecast period of existence threatening risk is generally one year. The severe risk that may threaten the existence of companies is regulated in a similar way in German national and international accounting standards.

The form of disclosure is only regulated by German national accounting requirements. GRS 5.30 together with GRS 15.91 advise that information about risk shall be reported in a different section of the financial statements than the forecast statements of the management. This regulation tries to separate risk and forecast information in order to prohibit a mix of information that would reduce the usefulness for investors. No such requirements exist in international regulations as all qualitative information is disclosed in the notes. The risk reporting profile varies according to German national and international regulations in regard to the place of disclosure within the financial statements, detail and forecast period. According to German national requirements risk information is centered in the notes and in the management report as a special risk section of the financial statements. In contrast international regulations demand an unstructured disclosure of risk related information in the notes due to the lack of a special management commentary that includes all risk information. This makes collecting data from financial statements of listed European insurance groups more difficult. is

Regulations

differ in detail and commitment

in so far as risk disclosure

recommendedor mandatory. The advantage that international regulations are adapted to the crisis situation is an advantage of the case based approach over the principal

47

based approach of German national regulations. International regulations can respond to crisis situation faster.

Amendments to the IFRS 7 within 2009 (IASB, 2009a) prove the flexibility of the case based approach of international regulations. The principal based approach of German national regulations is more rigid when risk information must be quantified and has the unique requirement to make a forecast statement over a period of maximum two financial years. According to Kaiser (2005) this attests the ability of the management to identify changes and risk that are considered significant by investors, because this ability guarantees the survival and future prosperity of the company.

This requirement goes far beyond the common requirement under international regulations to disclose risk that threatens the immediate future of the insurance companies. Quantitative information about future risk is not required in this financial crisis according to PricewaterhouseCoopers, an auditing company (PWC, 2009). It is a situational and crisis related assessment risk disclosure that provides investors with the of the future impact of the situation. The decision

management's

usefulness of this key risk disclosure to investors is not provided by international regulations.

Analysis of German national and international risk disclosure requirements showed that both types of regulationscover the three investment risk categories, the measuring risk and the forecast requirements that are assumed to be relevant for investors in a financial crisis situation.
The required detail and perspective of risk disclosure varies among German and international requirements. Most significant is the forecast requirement of financial results and risk situation according to German regulations that is missing in international regulations. This prediction must have a perspective of one year ahead. It adapts risk disclosure to the individual situation of the company and must consider the

current risk environment created by the financial crisis as well as strategies of the management to cope with the crisis. The lack of such a forecast according to international requirements makes is hard to compare the group financial statements of

48

Non-German insurance companies that do not have to comply with these national regulations.
It might be an advantage of all listed German insurance companies that have to comply in their group financial statements with German national and international accounting rules. Differences exist regarding the detail of required disclosure. Some international requirements are more detailed and require a quantified risk information instead of a qualitative one.

Can different risk disclosure requirements result in a common level upon which the risk disclosure of European insurance companies can be compared? Because German national and international requirements differ in detail it is impossible to define one set of rules as the required level of risk disclosure. Therefore it is beneficial to assume that

these insurance groups compete for a certain level of disclosure by providing more informationthan necessary to meet the accounting rules.
Core (2001) introduced this assumption to disclosure research by stating that voluntary disclosure can be defined as disclosure that exceeds regulatory requirements. Therefore the highest level of both German national and international regulations can be set as the required level and all risk information that exceed that level can be defined as voluntary disclosure. This stricter approach definition recognises exceeding disclosures practices. This theoretical might face some difficulties in

measuring the level of voluntary risk disclosure, because the disclosure level among the analyzed insurance groups might be higher than relevant accounting requirements. As a result information that does not meet the peer group level must be negatively recognized when risk disclosure is compared among European companies. German national and international regulations offer alternative accounting treatment if an information cannot be disclosed. The alternatives can be less specific qualitative disclosure (GRS 5-20 par. 32) or the statements of reasons why the required disclosure cannot be made. Because of these alternative treatments it is possible to recognize information that researched companies must not or cannot disclose. Thus, a statement that a company must not or cannot disclose that information can be distinguished from the behaviour a company that just omits this information. 49

As a result of this literature review it can be stated that German and international risk disclosure requirements have levelled in and present a common basis of requirements since 2007. They differ slightly in regard to the analyzed categories of risk that are crisis relevant and differ significantly in their forecast requirements. However the statement of Dobler (2005) can be supported that risk disclosure remains subjective, although comparable regulation exist. But risk disclosure must be made comparable in order to be analyzed with a self administered disclosure index. To perform this the preferences of investors must be recognized. To make risk disclosure measurable and comparable according to Cheng and Courtney (2006, p. 267) a "checklist-approach" shall be applied. This is achieved by defining the highest level of German national or international disclosure level as the reference point. Additionally the preferences of investors shall be recognized to weighten the criteria in order to measure risk disclosure.

In previous studies researchers construed disclosure indices assuming that the amount of risk disclosure is a proxy for disclosure quality (Botosan, 1997, Lang and Lundholm, 2000, Hussainey et al, 2003, Evelt et al., 2009). Improved methods are used by Schleicher et al. (2007) who measure disclosure quality as the number of forward looking profit statements in annual report narratives. This method, as well, is based on the assumption that quantity equals quality approach and should be extended. Investors preferences based on the Jenkins report (AICPA, 1984) and a more recent report (EFRAG, 2009) regard quantified forward looking risk disclosure as of the highest informative quality, specifications of the risk factor is of medium informative quality and mentioning risky financial instruments as least informative. Both studies prove these preferences to be stable over time. Another method to measure the quality of disclosed information is analyzed by Beattie et al. (2004) who suggest the time orientation, financial orientation and quantitative orientation of information disclosed must be recognized in measuring a disclosure profile. This approach extends methods that assume disclosure quality is solemnly connected with the quantity of key words disclosed. However this superior method to 50

measure disclosure quality cannot be applied to crisis situations, because risk disclosure within annual group financial statements is highly regulated and cannot be
fully varied. As an example, the time orientation of the researched risk disclosure

cannot be chosen freely because financial statements are legally required to be published at certain points of times after the end of the financial year. This restricts the possibilityto measure the timing of information over a short crisis related period. It can be summarized that the highest level of German national and international risk
disclosure requirements can be used as categories within the check-list that creates the self administered index. The degree of fulfilment of these categories is measured

according to information preferencesof investors.

3.1.4. Implications for the research methodology

The literature review on the interaction between companies and the capital market has implications on the researched period of time, the unit of analysis and the measuring of risk disclosure performance. Theories do not provide a simple cause and effect model that would explain what extent and quality of risk disclosure investors' demand. As a result an optimum of risk disclosure cannot be defined for the recent credit crisis. Theory indicates that during crisis situations other factors that influence investors beside risk disclosure become less significant. So crisis situations are appropriate to analyse the effect risk disclosure can have on investors in the capital market. But the restriction has to be recognized that accounting standards should be stable and uniformly applied by insurance companies in order to result in a comparable risk disclosure performance. This limits the research period of time to a period between 2007 when IFRS 7 was uniformly applied in Europe (Ernst & Young, 2009) and 2008 when the moratorium that postponed significant changes in international accounting regulations by the IASB phased out (Hayn and Prasse, 2009).

Empirical studies by Armeloh (1998) Bungart (2003), Vielmeyer (2004) Kraft and Nolte (2005) as well as Kirchhoff (2007) apply self administered disclosure indices that are based on classes specified in accounting regulations. This procedure requires constant accounting standards that are uniformly applied by the companies that are analyzed. 51

The insurance companies must apply IFRS 4 and IFRS 7 in order to approximately meet the risk disclosure requirements of German insurance companies in their management reports by additional risk disclosure in their notes. Differences between risk disclosure requirements can be levelled out by non-German insurance companies by providing voluntary risk disclosure. Therefore insurance companies from Germany and other European countries that are required to apply IFRS can be compared as long as they have a similar risk portfolio that derives of their business structure and

geographicalbusiness activities.
Studies by Chen (2006) and Coval et al. (2009) have significant implications on how

risk disclosure performance is being measured by focussing on key words to find relevant information in the narratives of consolidated financial statements. Such key words add additional power to a self administered risk disclosure index when it is
adjusted to the individual crisis situation.

This index should be operationalized by an audit-like check list. In order to achieve this the five classes of risk disclosure detailed by German national or international accounting standards that cover risk disclosure are taken as a founding structure and the extent and quality of risk disclosure by each listed European insurance group should be measured based on the risk information disclosed in the group financial statements. The restriction on group financial statements recognises that IFRS 4 and IFRS 7 are only mandatory in these financial reports and not in quarterly statements. In tune with constant investor preferences quantitative risk disclosure including forecast information is being regarded as highly informative, specified qualitative disclosure including negative statements about the lack of a certain risk is regarded as medium informative and unspecified qualitative disclosure is regarded as least informative. The classes must be weighted and then summarized to be an index. The annually published and insurance related index used in the German periodical "manager-magazin" that derived from research by Armeloh (1998) shall be applied on the relevant disclosure risk classes because investors information preference are fairly

constant over time (AICPA, 1994 and EFRAG, 2009).

52

3.2. Motivation of companies to disclose risk

The motivation of listed companies to disclose risk in their financial statements is analyzed on three different levels. The structure of the analysis is the same on every level and starts with theories or empirical studies and ends with the research results being applied to the recent crisis situation. The motivation is analyzed in order to identify factors or derive methods that should be recognized in the methodology of this research project. First, economic theories and studies are assessed to explain using the principal agent theory why companies are motivated to disclose risk in chapter 3.2.1. In this chapter it is assumed that on this high conceptional level no organizational rules or restrictions is it in 3.2.2. level On the analyzed what factors motivate chapter second preexist. managers to disclose or withhold information. This is done on a corporate level assuming a set of rules and internal corporate limitations defined as corporate level in 3.2.3. it On the third is analyzed whether being chapter applied. governance disclosure behaviour factors influence the non organisational of managers and other companies. Implications for this research methodology are summarized in chapter 3.2.4.

3.2.1. The principal agent theory

The relationship between the company's management and its shareholders is explained in economic research by the principal agent theorem. The relationship between management and investors can be interpreted as a relationship between the agent who is entrusted by the investor to manage his company. An information asymmetry between agent and principal exists, because the agent knows more about the market and corporate circumstances than the principal. By disclosing information the information asymmetry between the management as the agent and shareholders as the principals narrows (Core, 2001) (Lambert, 2001).

It has been recognized in the economic theory that contracts between principal and
agents can enforce the disclosure of information and thus reduce this asymmetry by obliging managers to report to their principals. Jensen and Meckling (1976) introduced principal agent and contracting theory to economic research as main concepts of misalignment of interests between owners and managers of companies. They 53

recognized that this potential conflict, coupled with the inability of owners to write costless perfect contracts and monitor the managers inherently reduces the value of
firms as economic entities (Cheng and Courtenay, 2006, p. 262).

The selfishness of managers by using private information gathered in their function as managers and withholding them from the public has been researched in regard to management compensation. According to Healy and Palepu (2001) as well as Bushman et al. (2004) managers influence the timing of reported profits because their compensation terms - that are fixed in contracts - depend on the point of time when profitability figures are disclosed in financial statements. Such misuse falsifies the true and fair view investors should get on companies through financial statements (IASB, 2001b) and negatively affects their financial decisions resulting in economic

inefficiencies. Bloomfield and Wilks (2000) support this conclusion with their research under the assumption of a laboratory financial market that is assumed in economic theory. They found out that greater disclosure quality leads to higher share prices resulting in an increased market value and higher liquidity of the company.

This empirical research results coincide with the unravelling theorem by Wagenhofer and Drcker (2007) that managers increase the fair value of their company by disclosing sensitive information, because investors otherwise assume the worst. These positive effects being coordinated with the costs of disclosure determine an optimal level of disclosure on this high level of economic theory (Baiman and Verrecchia, 1996).

The general finding of Bloomfield and Wilks (2000) states that positive economic effects of disclosure are stronger when investors face a risk event. How can this theoretical background be applied to the researched crisis situation? A characteristic of this financial crisis was the insecurity of investors about the fair value of certain financial instruments of the company they owned. Being complex in their structure these instruments have no listed price or original market value. Their value derives from calculations based on assumptions set by managers of the companies caused by the lack of verified information from markets or other external scources. 54

This information asymmetry between manager and investor is defined as measuring risk in chapter 2.3. and is specific to this recent financial crisis. Ktzle and Grning (2009) in their research study support the conclusion that the information asymmetry enlarged during this crisis. According to Cheng and Courtenay (2006) asymmetry cannot be eliminated neither by costless perfect contracts nor by constant monitoring of managers by the owners of companies. Therefore corporate rules or regulations on the disclosure of the measurement assumptions on certain financial instruments must address this crisis specific measuring risk. This can be achieved on the company level by applying rules or a set of rules such as corporate governance. These rules shall increase disclosure in order to reduce the information assymmetry.

3.2.2. Corporate

governance

affects

risk disclosure

on corporate

level

How can the selfishness of managers be tamed? Companies try to limit the negative effects of their managers' selfishness with corporate restrictions and try to utilise it with disclose to information. The limiting that managers motivate arrangements contractual aspect is stressed in the corporate governance definition by Menz and Nelles (2009) influence facts that is the corporate decision it the that rules and of all sum stating making process of the management. These restrictions can be internal or external ones such as banks, auditors and courts (Cheng and Courtenay, 2006). The aspect of utilizating managers' selfishness extends the scope of this definition. It is included in the corporate governance definition by Denis and McConnell (2003) which includes both internal and market based mechanism that induce the self interest of corporate agents to make decisions that maximize the value of the company to its owners. Empirical studies focus on the factors that limit selfishness of managers by the disclosure of relevant information. In the following studies that researched the relationship between disclosure and other variables are presented such as institutional ownership of the companies, existence of audit committees, quality of company's auditors and the independence of the board of directors. The assumption that institutional ownership controls agency problems could not be empirically supported by Eng and Mak (2003) who found out that the structure of ownership and not the single factor of institutional ownership determines the level of

monitoring and thereby the level of disclosure desired. These research results are
55

specified by Chen and Cheng (2007) who found out that beside auditors' quality the degree of institutionalshareholders is significant to the quality of disclosure. Institutionalshareholders need a certain degree of significance in the form of a share in voting capital to prevent managers from increasing or decreasing reported profits towards a level desired by them (Chung et al., 2002). Non voting or an insignificant
share of institutional investors thus does not improve disclosure.

Few empirical studies focus on the market based aspects of corporate governance. They do not focus on single rules or contracts that utilize the selfish motivation of managers. Instead they analyse correlations between corporate governance indices and variables of the financial market. Lehn et al. (2007) find statistical support that good grades on corporate governance indices increase the share value in the long run. The reliance on a corporate governance index of this study shows that individual corporate solutions to utilize managers' motivation are hard to identify, to measure and to compare. Market based mechanisms that induce the self interest of managers are specific to each company and difficult to compare. How does corporate governance affect disclosure in the crisis situation? The terms of managers' compensation packages are named as one reason of the recent crisis that lead to overhauling risk due to short-sighted behaviour of managers (Anonymous, 2009b). Rewarding short term success these contracts encourage managers to make deals that improved the short term profit situation of the company and accordingly their annual bonus without recognizing the long term risk burden these deals placed on the companies. Only some financial companies changed their compensation contracts as a result of the crisis to risk adjusted measures that determine the size of bonus payments (Anonymous, 2009b). Aside from being inflexible to changing requirements and individual to the company can corporate governance improve the economic situations in times of crisis? Research on the cause and effect relationship between corporate governance and the estimate of market participants on the insolvency probability of companies in the crisis situation showed puzzling results.

56

Menz and Nelles (2009) found no correlation between credit default ratings and corporate governance index ratings of German companies before and during the financial crisis. So this empirical research does not support that high corporate governance performance reduces insolvency risk. This study however excluded insurance companies and sets no results for this research project. It indicates that no single cause and effect relationship in regard with corporate governance exists and that other factors that influence risk disclosure should be recognized in research methodology as well. The next chapter analyses factors that are not part of economic theories or corporate governance.

3.2.3. Non organizational factors

This chapter analyzes factors that influence corporate disclosure and underlying behaviour of managers in the absence of corporate restrictions. Fields et al. (2001) recommend to structure research findings according to the sources of pressure that affects disclosure. Following this approach the sources can be subdivided into external and internal factors that upheld pressure on managers and on corporations to disclose risk information. External factors can be supervisory power, group pressure, corporate size or linkage to foreign markets. Internal factors that motivate to disclose are predominantly cost related.

External pressure can be put on managers and companies by supervisory agencies and by factors that influence the performance of the company which they are responsible for. The pressure to perform increases with the benchmark group of companies that the manager with his or her individual performance is compared to. Such an increase in comparable companies can be caused by internal growth that brings the company above a certain size so that it is recognized and compared to others. Another way to increase the number of comparable companies is by expanding to other markets especially foreign markets and open the company with such a step to the scrutiny of additional customers and investors. Supervision, group pressure and pressure by other markets are analyzed as external sub-factors causing pressure on managers to disclose risk information.

In regulated industries like the insurance industry pressure is put onto companies by regulatory bodies (Scheytt et al., 2006). Facing external pressure insurance companies
57

improve their governance transparency defined by Bushman et al. (2004) and Bushman and Piotroski (2006) as disclosure to German national or international supervising agencies. Despite the possibility to use their external pressure supervisors generally do not apply direct pressure but instead use the intrinsic motivation of insurance companies to reach an adequate level of transparency. Smith and Tombs (1995) researched that higher transparency lowers the burden of inspections for individual insurance companies. This however can vary over time and depends on local situations, because according to Ericson and Doyle (2004) insurance companies have a constantly changing partnership with the state. Because misdemeanors against regulators can have legal consequences managers have an incentive to meet disclosure requirements set by regulators in their statutory accounting for regulating national agencies. Their incentive to exceed them voluntarily however is limited. Group pressure to disclose information is thoroughly researched. Based on the economic theory of information asymmetry competition between companies tend to reduce private information of managers. This information is available in several competing companies so that single managers cannot selfishly use them in the market. Verrecchia (2001) summarizes that competition is an incentive for companies to disclose.

Based on the influential study by Welker (1995) Botosan and Harris (2000) find out that the size of companies is a significant factor associated with disclosure. According to theoretical research by Bushman et al. (2004) and Vielmeyer (2004) transparency is finding larger. This theoretical is firms higher empirically are when significantly supported by research from Khanna et al. (2004). Smaller companies try to meet the legal requirements while bigger companies try to excel them using discretionary disclosure defined as voluntary disclosure in excess of existing regulations, according to empirical research by Ktzle and Grning (2009). Based on this common understanding Kirschenheiter and Jorgensen (2003) found out that aside group pressure as one factor another factor that influences disclosure is whether the information disclosed are negatively or positively received by investors.

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This influences the timing of disclosure and depends on the market structure the company is embedded in. Dye and Sridhar (1995) researched that disclosure
improvements are similarly timed in oligopoly markets by participating companies. These results are disputed by an empirical research study with contradicting results performed by Pincus and Wasley (1994). Insurance companies using international financial reporting standards and having a similar business portfolio can be seen as a group similar to the group analyzed by Dye and Sridhar (1995) characteristics. Similar disclosure behaviour of these companies has been identified with the application of IFRS 7 that was fully applied in the industry by 2007 although required by 2006 already (see chapter 3.1.3. ). These research results lead to the conclusion formerly discussed by Pae (2002) that group pressure as a factor to improve disclosure limits the selfishness of managers to alter the extend or timing of disclosed information. This leads to the requirement of a homogeneous group of insurance companies being studied in this research. The interaction with other markets is another extrinsic pressure factor on companies' disclosure. Cross listings are a relevant form of interaction that influences corporate accounting and has been thoroughly researched. Khanna et at. (2004) found that companies that are subject to US-accounting standards especially increase their disclosure quality. This supports previous research by Lang and Lundholm (1993) and Lang et al. (2003) and can be explained by the exceptional enforcement power of the SEC as the regulatory watchdog of US-accounting standards which is not achieved under non-country related accounting standards like IFRS according to Pellens (1997). Apart from this institutionalized external pressure to extend disclosure Baily et al. (2006) argue that internationality itself is a factor that increases disclosure (see Khanna et al. 2004) even without pressing institutions. This aspect is discussed as the 'legal bonding hypothesis'. Supporting this theory insurance companies analyzed in this research study should comply to the same accounting standards in order to be comparable in their risk disclosure. Internal pressure to disclose information is put on companies by the economic incentives associated with it. According to Weick (1995) organizations have an intrinsic

59

motivation to inform the market about the way they handle risk by accounting and information systems. Extended disclosure reduces the cost of the company to acquire additional equity and debt on the capital market. This economical explanation is called transaction cost economics by Williamson (1975) and has been extensively analyzed by Verrecchia (2001). His theoretical explanation has been thoroughly tested in empirical research studies by Welker (1995), Botosan (1997), Botosan and Plumlee (2002), Sengupta (1998) and Healy et al. (1999). While these studies that researched US companies and the US financial markets support Verrecchia's theory Ktzle and Grning (2009) researching German companies state that there is no empirical proof of an incentive to increase disclosure in order to reduce cost of capital. This statement however is restricted to conditions in Germany with its less developed capital market culture. Disregarding research of Ktzle and Grning (2009) all insurance companies analyzed in this research should be listed companies that avail themselves of additional disclosure by lower cost to a comparable level.

Beside all the incentives to disclose that are described above there are internal and external costs of disclosure that reduce companies' incentive to disclose risk information according to Verrecchia (2001) and Vielmeyer (2004). The costs of disclosure are not published in the financial statements of companies but internal costs could be measured. They include cost of information collection (Beierle, 2004) and cost of processing information and report relevant information in financial statements (Depoers, 2000). Both types of costs are paid for by the disclosing company. The cost level depends on how sophisticated the management reporting systems of the disclosing listed European insurance group are and how diversified its organizational structure is that makes it more difficult to gather the relevant information (Depoers, 2000). External costs on the other hand cannot be measured. They include the cost of unintended use of sensitive information by competitors (Beierle, 2004). Such use can become financially harmful to the disclosing entity according to Depoers (2000). This effect however cannot be measured. Other external costs are proprietary costs according to Verrecchia (1986). He defines them as costs for withholding the disclosure of bad news by companies. Verrecchia (1986) argues that traders expect a general disclosure of bad news among groups of the same market. When one group does not disclose traders assume the worst for this group that withholds such information. As a result the share value of this listed group decreases. Cost and benefit

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of disclosure must be recognized in order to find an optimal level of disclosure (Bushman and Verrecchia, 1996). However Vielmeyer (2004) along with Wagenhofer and Ewert (2003) disagree that this level can be determined. Thus the costs of

disclosure are neither fully measurable nor published in the financial statements and cannot be considered as a variable in this research study.
Another limitation is the behaviour of managers. Theoretical research by Lambert (2001) states that risk disclosure tends to decrease because it is seen by managers as a negative information that unveils their past mistakes. As a result they try to disguise their actions by providing biased information to the investors (Surrey, 2006). Lenz and Diehm (2010) challenge this when they state that risk information are hard to verify and cannot be traced back to the managers.

A similar aspect of disclosure timing is empirically researched. According to Shaw (2003) managers delay recognition of bad news in the balance sheet until they prepared the market by enhanced disclosure in the notes. Managers therefore try to delay the recognition of bad news but they cannot prevent it altogether.

3.2.4. Implication for the research methodology

The analysis of the motivation of companies to disclose risk has lead to implications on the type of risk disclosure, the variables and the unit of analysis.
The principal agent theory supports the research topic. Managers know the

assumptions and procedures to measure complex financial instruments. This sensitive risk information should be disclosed in a crisis situation in order to reduce the information asymmetry between management and investors. Such risk disclosure would create transparency that restricts the power of managers in setting the assumptions and calculation method to value these financial instruments. Without information about the measurement investors would assume the worst in a crisis situation according to Wagenhofer et al. (2007). In the setting of a financial crisis the worst for investors would be that these financial instruments have no positive fair market value, cannot be sold or only by a fire sale that creates losses. These losses would reduce the equity position of the company and therefore increase its risk of insolvency of the company.

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In order to increase the pressure on managers to disclose this information institutional investors with a significant share holding in the company's equity are necessary.They can be included as a control variable in the research methodology. The proportion institutional investors should have in the equity can be set in analogy of research by
Shleifer and Vishny (1986).

A further non-organizational factor that restricts individual interests of managers is group pressure. As an implication the group of analysis - the insurance companies that are analyzed in this research study - should be share exchange listed companies that are coherent in their business structure.

The idea of an optimal level of disclosure is a theoretical concept that cannot be applied to this study. Lack of published disclosure cost would disrupt any calculation of cost and benefit that can result in the determination of an optimal disclosure level. It is therefore not considered in the research methodology.
Research by Bagnoli and Watts (2007) analyzes the setting of complex situations in which disclosure is used to pursue a certain corporate strategy. Although not related to the research study by topic conclusions about the research methodology can be drawn from it. The authors suggest the use of event study methods during situations of market extremity. So this method is used in the research methodology of this thesis to quantify the reaction of the capital market towards disclosure.

3.3. Reaction of the capital market towards disclosure

The Focus of this chapter is the behaviour of capital market participants. Different types of capital market participants and their decision making process are analyzed. Based on the categorization of the participants their behaviour towards disclosure information is explained by economic theories and empirical studies in subchapter 3.3.1. These theories assume rational investors as market participants. To supplement the literature review in regard to a crisis situation additional psychological factors like trust and fear that affect the behaviour of capital market participants at that time are explained in subchapter 3.3.2. All explanations of market participants behaviour are summarized and applied to the research methodology in subchapter 3.3.3.

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3.3.1. Participants in the capital market

Literature identifies different types of capital market participants. Investors are regarded as the key element of the capital market in disclosure research (Verrecchia, 2001). This is supported by the perspective of international accounting standards which focus the disclosure of information on investors' needs aiming to provide them with information that should be useful for their investment and divestment decisions (IASB, 2001 a). Investors can either be private or institutional. How these different types of investors regard disclosed information by companies is not adequately resolved in the literature.

Researchers often assume similar preferences and decision making of private and institutional investors. They do not distinguish between the two investor types (Nagar et al., 2003). However following theoretical problem can enumerate the distinction that would be helpful in this research.

Shleifer and Vishny (1986) state that in a company owned by many small owners it does not pay for any individual owner to monitor the performance of the management because each single owner lacks the power to change wrongdoings by the management. By contrast institutional investors like family trusts, pension plans, banks, insurance companies or investment funds (Shleifer and Vishny, 1986) are empowered to intervene in management decision if they possess a significant part of

the shares.
Institutional investors can therefore be defined as belonging to a certain organisational structure and holding significant power to influence management decisions. This makes institutional investors more sensitive to corporate disclosure and there is an incentive for them to consider disclosed information in their financial decision making process. Private investors lack this incentive. It is more plausible for them to make their investment decisions based on recommendations provided by analysts. Along with different motivations institutional and private investors differ in their decision making

process model as well. All capital market participants have a common aim. They try to evaluate the fair value of companies they want to invest in or divest from. If the share market values of a 63

company is lower than the value estimated by the participants they buy shares of the
company. If the share market value of a company is higher than its estimated value they sell their shares in it (Vater et al., 2008). Investors are supposed to take their decisions based on this economic explanations. This decision making model is based on assumptions of fully available information, no transaction costs and fully rational decision makers. However certain market phenomenons do not make sense on the basis of traditional economic models according to Hirshleifer and Teoh (2003). They can only be explained by psychological theories of which the private investor are exposed to by a higher degree than institutional investors. How psychological factors affect private investors is the subject of subchapter 3.3.2.

In contrast to private investors institutional investors tend to standardize their decision making process in order to evaluate the value of companies. They use uniform
measurement-models for this task. These models include quantitative data from financial statements in addition to current ones historical data are processed to predict the future value of companies. Thus, both types of data are included in the calculation of the current value of the company which summarizes the value of a company based on the future development of its business activities. These models - like discounted cash flow analysis - are used for accounting purposes as well (IASB, 2005). How good the results of this process are depending as well on the quality of qualitative information that the market participants get about the company. Vater et al. (2008) argue that qualitative information disclosed in financial statements are leading indicators for the market value of the company. This argument is empirically supported by research from Pechtl (2000). He analyzed the forecast disclosure of German companies and could prove that these are an integrated part of the decision making process of institutional investors. The growing importance of forecast disclosure is supported by research of Sinah and Watts (2001) who state the growing relevance of future oriented information to investors.

Yet an advance decision

making model is necessary

to integrate

qualitative

information about the future when calculating the value of companies based on a probability weighted cash-flow basis on scenario basis. It is assumed for further

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research that private investors have a reduced capability to process such type of informationthat comes along with advanced standardizedmethods.
Financial analysts are intermediators in the capital market. They are important players in that market and are frequently assumed to represent and influence investors belief and their activities. However the effects of extensive disclosure on analysts are ambiguous according to Healy and Palepu (2001). They argue that extended disclosure enables analysts to make superior forecasts and recommendations. On the other hand better public disclosure preempts analyst ability to distribute private information of managers to the investors. Healy and Palepu (2001) state that enhanced disclosure leads to lower demand of analysts' services. This is plausible for institutional investors. But considering a crisis situation private investors might rely more on expert opinion during that time for psychological reasons such as fear.

In the following the behaviour of each category of capital market participants towards extended risk disclosure is predicted. This is done based on empirical research studies. Whether participants sell or buy shares of companies that disclose risk information is influenced by their decision making process and their role in the capital

market.
Research on private investors found out that personality related and situational factors influence their decision making. Research showed that personal experience investors have made during their early childhood affect their investment behaviour as adults (Anonymous, 2009a). This influence can hardly be overcome by additional disclosure of companies. Research analyses a variety of other personality related factors that influence their financial decision making. An empirical study on situative factors by Porcelli and Delgardo (2009) found out that under stress private investors tend to chose riskier investment alternatives. When facing the possibility of a minor loss or a major one the research participants chose the major loss alternative when being exposed to stress factors. Applied to crisis situations when investors are exposed to such stress they hold on to shares and do not realize the loss that can be determined right now. Instead they hope that the situation might improve in the near future.

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Apart from personal or situative aspects research found out that investors are more likely to hold on to shares of companies that raise their confidence by a long track record of extended disclosure (Diamond and Verrecchia, 1991) (Kim and Verrecchia, 1994). This research supports the assumption that it takes a long period of time to build up confidence in investors in regard to a certain company. Arpan and RoskosEwoldson (2005) modify the assumption to crisis situations. They state that by disclosing bad news early and fully in a crisis situation a company can build up trust. Summarizing research results on the behaviour of private investors it can be stated that their financial decision making is hard to predict due to personal traits that question the existence of uniform investors. Even if uniform investors are assumed to exist situative factors that change the level of stress must be recognized in order to predict financial decision making of private investors. This aspect is analyzed in subchapter 3.3.2. with psychological factors like fear and trust which might dominate the decision making process of private investors in stress situations.

Research on institutional investors does not find situative factors to influence their decision making behaviour. Like private investors they tend to hold to shares of companies with enduring good disclosure performance according to Diamond and Verrecchia (1991) as well as Kim and Verrecchia (1994). It can be assumed that this factor influences institutional investors more than private ones due to the lack of disturbing situative factors and their increased decision making process capability to store and process historic disclosure information and forecasts.

Research by Bushee and Noe (2000) states that institutional investors have an excessive focus on short term performance of companies they invest in. This trait may lead institutional investors to disregard risk disclosure by companies and cut their losses instead of holding on to their shares in times of crisis situation. No empirical research supports this theory. Literature does not provide indications on how the decision making process of analysts is affected by extended corporate disclosure but only the other way around. Research by Healy, Hutton, Palepu (1999) as well as Lang and Lundholm (1996) show that more information disclosure leads to a larger analysts following of that company. According to Barth and Hutton (2004) this has a positive effect on corporate disclosure as those 66

companies integrate more rapidly corporate information on accruals than less followed firms. It is safe to assume that the quality of recommendations improves the more analysts deliver their view on the corporation. However no research has been

performedon how analysts react to enhanced disclosure of companies during times of financial distress. Although common sense suggests that they reward disclosure because it enables them to make better and information based recommendations on these corporations. Summarizing the analyzed research studies no coherent response of private, institutional investors as well as analysts to enhanced corporate disclosure can be assumed drawn from existing research. Predominantly, research is based on the assumptions of uniform investors and rationality of their decision making process. Additional psychologicalfactors that influence foremost the decision making process of private investors in times of distress are presented in the next chapter.

3.3.2. Psychological factors that influence the capital market

Private investors do not predominantly use standardized measurement-models. Their decision making process is more opaque and seems to be influenced to a higher degree by the interaction with other individuals (Hirshleifer and Teoh, 2003, p. 27). This

might lead to a substantial dependence on analysts recommendation.

The assessment by Hirshleifer and Teoh (2003) discussed in literature under the name of "herd behaviour" is based on Keynes (1935) who stated that the markets are moved by "animal spirits" and not by reason. Hirshleifer and Teoh define herding as any behaviour similarity or dissimilarity brought about by the interaction of individuals. It includes sub-rational mechanisms that induce an individual to be influenced by the behaviour of another individual to behave in the same way (Hishleifer and Teoh 2003).

Several empirical studies try to measure herd behaviour in investment decisions

focussing on private investors (Jain and Gupta, 1987), (D'Arcy and Oh, 1997) (Foresi et al., 1998). All studies found only weak evidence of herding in different investment decisions. The disappointing results of empirical research are partly to blame on the impossibility of researchers to eliminate other causal factors that might affect the

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financial decision making process of private investors aside from interaction that causes herding behaviour as explained in theory by Hirschleifer and Tech (2003).
A theoretical explanation by Vater et al. (2008) of how companies communicate with capital markets can be used to describe the relationship that leads to herding. It states that collective psychological and emotional decisions are affected by the reputation of the company. They define reputation as the sum of all images that stakeholders have about a company (Vater et at., 2008). The effect of a good reputation is trust that investors have in the abilities of the management. Vater et al. (2008) assume that trust in the company leads to a loyal behaviour of the market participants towards the company. In times of crisis instinct based behaviour prevails and investors become more sceptial (Keynes, 1935). So trust can balance this scepticism and make market participants stay invested in the company (Vater et al., 2008) because they assume that those effects forecasted by companies in their disclosure are to remain or become true.

This idea is supported by the "stealing thunder-theory" (Aspan and Roskos-Ewoldson, 2005) that increases trust by early and extended disclosure of bad news at the beginning of a crisis. This idea has been empirically supported by Lundholm and Myers (2002) and Zarowin and Gelb (2002). Other theories why companies disclose

bad news are discussed by Skinner (1994) who does not pursue an approach that focuses on crisis situations.
Nevertheless, scepticism can also prevail and overturn trust into fear. Acting according to that feeling market participants sell shares of all companies regardless of their previous disclosure performance. What is easily explained in theoretical models cannot be supported by empirical research. One point objecting empirical research is that herding is very hard to measure because of contradicting effects (Hirshleifner and Teoh 2003). So research studies performed on a company-level by Jain and Gupta (1987) leads to mixed results seeing no herding among the bigger market participants and herding in the behaviour of the smaller market participants following the bigger ones.

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It can be summarized that the images of companies in the mind of capital market participants can influence their investment decisions. Trust in a company has a stabilizing effect and herd behaviour a destabilizing effect on the investment decision of market participants. Whereas trust is a feeling that influences private investors to proceed in their own financial decision making process herding leads private investors to follow recommendations of analysts or act without individual consideration in accordance with the behaviour of other private investors.

According to empirical research by Choe et al. (1997) herding takes place before a crisis period but not within the crisis. This is recognized in the timing of the event study within the research methodology. Whereas the decision making process of private investors cannot be predicted in regard to psychological factors research by Sias and Starks (1997) found out that institutional investors reduce price effects of herding. When private investors tend to emotionalize, institutional investors build a rational counterpart that can - after gaining a critical mass in number or reputation - lead to tipping private investors in favour of rational decision making back again. This is considered by Hirschleifer and Tech (2003) as a possibility of future research. Literature revealed that the relationship between disclosing companies and investors are influenced by multiple factors among them psychological ones which make it hard to determine a causal relationship. Emotions as part of the decision making process of

capital market participants harrass attempts to predict investors behaviour. 3.3.3. Implication for the research methodology In respect with the results of analysing the reaction of the capital market following aspects on the variables and the timing of the event study are recognized in the
research methodology. Research shows that investors are not homogenous and must be studied according to categories of private and institutional investors. This implies that the ownership structure of all companies analyzed in this research methodology must be known and categorized. The categories of private and institutional investors can be defined using definitions of the research by Shleifer and Vishny (1986).

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Another implication that derives from the literature review is that investor decision making can depend on long term experience with the disclosure performance of the company. However it is understood that psychological factors influence the financial decision making process of private investors too but that they can hardly be singled out as a factor in this research study. They can be used to explain unusual effects that do not comply with shared economic sense. Herding cannot be eliminated as a factor influencing private investors behaviour because it is considered high before a financial crisis peaks.

The reaction of the capital market towards disclosure has been empirically tested during the South East Asian financial crisis in 1997. Research by Baek et al. (2002) analyzed the effect of disclosure quality on the share value of Korean companies during this regional financial crisis. They found out that Korean firms that 'had higher disclosure quality (... ) suffered less' in their share value (Baek et al., 2002 p. 269). This study is supported by earlier research with a similar structure by Mitton (2002). Baek et al. (2005) used the "event study method" which measures the development of the share prices at days around a significant event. Share prices are called by the researchers "return" and consequently the deviation of share prices form an individualized industry share index around a significant event is called "abnormal return". The accumulation of all abnormal returns of each international insurance group in the days around the event is called "cumulative abnormal return". The significance and direction of the abnormal return shows that investors held on to the share of a company or sold it around that event, resulting in a lower share price. The application of the event study method is regarded by Bagnoli and Watts (2007) as the standard in the research field of market extremity. Considering psychological aspects like trust and fear such tool should be applied when the crisis situation peaked in order to test the full extension of these psychological factors. The influencing effect of reduced herding according to research by Sias and Starks (1997) by institutional investors on private investors is monitored in the research methodology of this study. It might be helpful to assume that a high level of institutional investors in an European insurance company has a calming effect on private investors that reduce their herding behaviour and increase the benefit of disclosed risk information by lower cumulated abnormal returns. However it cannot be ruled out that 70

situative circumstances can superimpose trust of investors that has been build up by fear with significantly different consequences in regard to investment or divestment decisions. Stress imposed on investors can lead to these psychological effects that cannot be sufficiently forecasted and affects predominantly private investors. Because trust of investors is hard to measure it is necessary to analyse the risk disclosure performance of companies over a period of time. In this research study it is done over two reporting periods because of accounting restrictions not longer (see subchapter 3.1.3. ).

Literature indicates that institutional investors as one owner group influence the extend of risk disclosure by companies (Chung et al., 2002). Similar behaviour has been empirically testified for Chinese listed companies by Chen and Cheng (2007). A calming effect of institutional owners on private investors during crisis situations has been indicated by Kim and Verrecchia (1994). This influencing factor modifies the intensity of the relationship between independent and dependent variables and can be defined as a moderator variable (Mbengue and Vandangeon-Dorumez, 1999). Additionally literature indicated that existence and timing of manager compensation schemes are influencing the extent of risk disclosure. Therefore the type of manager compensation is recognized as a control-variable in this research study. After catching the phenomenon of risk disclosure and the reaction of capital market participants in a model which is enriched with additional variables the validity of this concept is verified. In a first step using a quantitative deductive method several hypotheses that arise from the concept are stated (see chapter 5.1. ) and afterwards tested.

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Chapter

4. Hypotheses
This chapter develops the hypotheses of the relationship between risk disclosing listed European insurance groups and the capital market is gathered. In order to answer the research question whether those listed European insurance groups with higher risk disclosure performance suffered less in their share value during the recent crisis or not the relationship is categorized in hypotheses in chapter 4.1., the relevant variables identified in chapter 4.2. and measured in chapter 4.3. Chapter 4.4. describes the research methods necessary for data processing and chapter 4.5. the

data and sample selection.

4.1. Development of Hypotheses

The aim of this research study is to detect how risk disclosure by listed European insurance groups influences the investment/divestment decisions of capital market

participants during the financial crisis. Based on theories and empirical studies analyzed in chapter 3a concept has been built that creates a model that consists of variables and assumes premises among them. This process is called conceptualization by Charreire and Furieux (2001) and it requires hypothesis that illustrate relationships within this concept. The theoretical concept is assessed in a real life crisis situation and the researcher has to determine whether a hypothesis is acceptable or not aside from limits that enables the researcher to make a decision about the acceptability. Further prerequisites for testing hypothesis are identified variables quantified by using a risk disclosure index, an event study and a modified equity ratio as well as quantitative and qualitative methods are needed. The six hypotheses that derive from the literature review in chapter 3 cover the following areas of the above mentioned relationship. Hypothesis H1 questions a relationship between the capital market and risk disclosing insurance groups. The next hypotheses cover the activities of the insurance groups and the capital market. Hypotheses H2 an H3 ask how listed European insurance groups adapt their risk disclosure performance in times of crisis or to their ownership structure. Hypotheses H4 and H5 question how the capital market evaluates the fair value of insurance groups in 72

a crisis situation based on trust that has been built up by disclosed risk information.
The hypothesis H6 is for technical reasons in this research analysis and questions the risk disclosure performance difference from 2007 to 2008. The last hypothesis H7

summarizesthe relationshipbetween all analyzed variables.

As stated in chapter 3.1.4. theory does not provide a simple cause and effect model that would explain to what extend the quality of risk disclosure of insurance group effects the financial decisions of investors. Although no single effect concept between accounting and capital market can be created in a functioning market situation Lutz and Diehm (2010) conclude that during crisis situations disclosed information can be of higher relevance for the decision making process of investors. With the intention of eliminating other confounding factors the hypothesis of a relationship between

disclosure and capital market is tested. The hypothesis is based on an empirical study of Baek et al. (2002) that higher disclosure quality of companies in a crisis situation stabilizes their share prices. There is no relationship between risk disclosure quality of listed European insurance groups and their fair value in a crisis situation. This H1 hypothesis is analyzed by the testing for a correlation between the risk disclosure performance of listed European insurance groups in their 2007 and 2008 consolidated financial statements and the cumulated abnormal return that represents the capital market reaction via the loss or

built up of trust towards disclosure. The correlation must be statistically significant with
a correlation coefficient within the confidence interval. The motivation of listed European insurance groups to disclose their risk is supported by the principal-agent theory. However organizational factors like the selfishness of their managers can restrict the disclosure of risk information. Specified to crisis situation Wagenhofer et al. (2007) state that listed European insurance groups are advised to disclose as much risk information as possible because investors otherwise assume the worst. This would bring those insurance groups with the highest exposure to mortgage portfolio based financial instruments that are in the center of the financial crisis according to Scharpf and Schaber (2009) to disclose most risk information in their consolidated financial statements 2007 and 2008. Extended and timely risk disclosure about these instruments would be awarded with high marks in the self administered risk disclosure performance measurement of this thesis. The reduction in 73

modified equity ratio from 2007 to 2008 is a proxy that is used to measure the extent of risk each listed European insurance group is exposed to via mortgage portfolio based financial instruments. It is assumed for this research that no situations occurred between 2007 and 2008 that
insurance listed European increased have the groups. The variable of would provisions change of modified equity ratio is based on the assumption that no significant insured event took place in the period 2007 to 2008 that would have hit a single listed

European insurance groups more than others and would have caused it to record for a provision that would have reduced equity. There is no relationship between risk disclosure quality of listed European insurance
groups and the degree they are affected by the financial crisis situation measured using the change in their modified equity ratio. This H2 hypothesis is analyzed by testing for a correlation between the risk disclosure performance of listed European insurance groups in their 2007 and 2008 consolidated financial statements and the negative effect that the recent financial crisis produced on their equity ratio. The correlation must be statistically significant with a correlation coefficient within the confidence interval. Based on chapter 3.2.1. corporate governance of listed European insurance groups can influence the disclosure quality. The empirical study by Chen and Cheng (2007) found out that a certain degree of institutional shareholders is beneficial for the risk

disclosure performanceof insurance groups.

There is no relationship between risk disclosure quality of listed European insurance groups and their degree of institutional ownership. This H3 hypothesis is analyse testing for a correlation between the risk disclosure performance of listed European insurance groups in their 2007 and 2008 consolidated financial statements and the minimum 10% level of institutional investors as defined by Chung et al. (2008) on the voting shares of listed European insurance groups. The correlation must be statistically significant with a correlation coefficient within the confidence interval. The relationship between corporate risk disclosure and the capital market response cannot be analyzed within the same period of time. The format to disclose risk

information is standardized and required in the consolidated financial statements of

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listed European insurance groups. The financial crisis situation peaked during September 2008 at a point of time when the last published financial statements has been half a year old and the next one expected in half a year. This time gap has been closed with the assumption of trust that can be build up by extended risk disclosure and helps investors to hold on to their shares during financial crisis situations. According to research in psychological factors that influence behaviour of market participants, extended disclosure leads to a good reputation of a company (DIRK 2007). Trust by market participants that derives from a good reputation of a company makes them hold on to the company's shares or to buy more. Bad reputation in combination with a crisis situation might lead to short sighted behaviour by market participants. This behaviour is recognized as "herding" in the literature (Hirshleifer, Teoh, 2003) and makes market participants divest from shares of companies with bad risk disclosure performance. The share prices of listed European insurance groups do not decline during the analyzed event of the financial crisis. This H4 hypothesis is tested by analysing whether or not the share market valuation of the insurance industry dropped after AIG announced its near insolvency. This is done by measuring the average standardized cumulative abnormal return of all thirteen listed European insurance groups that sould be zero when no effect takes place and be negative when the share market valuation

dropped.
The next hypothesis is based aside from theoretical knowledge analyzed in chapter 3. Based on the assumption that risk information are communicated between listed European insurance groups and the capital market using structured ways like financial statements the capital market could not detect differences between the insurance group. The information about drops in the fair value of crisis relevant financial instruments and impairments that would reduce the equity of insurance groups have been disclosed later than the point of time when the event study that measured the reaction of the capital market has taken place. There is no relationship between the capital market reaction and how the modified equity ratio of listed European insurance groups has been affected by the financial crisis. This H5 hypothesis is analyzed by testing for a correlation between the cumulative abnormal return that represents the capital market reaction and the proxy 75

for the negative effect that the recent financial crisis produced on the equity ratio change from the consolidated financial statements as of 2007 to 2008. The correlation must be statistically significant with a correlation coefficient within the confidence interval. This hypothesis test whether or not the capital market is efficient in detecting those listed European insurance groups with the highest risk and the resulting drop in their equity disregarding their risk disclosure performance. The risk disclosure performance is not measured in an index that includes the checklists of 2007 and 2008. Instead the analysis of each financial year is measured separately. The reason for this is that the accounting requirements changed during the in been the checklist 2008 that has key that performed words a search of crisis and could not be performed in the checklist 2007. This separation allows additional discretionary their listed European insurance how risk changed groups research on disclosure. A prerequisite for these conclusions is that there is a relationship between the results of the risk disclosure analysis for 2007 and 2008. There is no relationship between the risk disclosure performance 2007 and 2008 of the listed European insurance groups. This H6 hypothesis is analyzed by testing for a correlation between the risk disclosure performance of listed European insurance their financial based their 2007 and risk disclosure statements on consolidated groups The financial 2008 based their statements. correlation consolidated on performance the be within confidence coefficient correlation statistically with a significant must

interval.
The next hypothesis summarizes the relationship between capital market and listed European insurance group that disclose risk information during the crisis situation. The dependent variable that measures the response of the capital market towards the risk disclosure and the two independent variables that measure the affect the crisis had on the groups by their reduced equity ratio and their risk disclosure performance measured in an index are combined. The goal of this hypothesis is to specify the relationship between the capital market reaction towards risk disclosure tested in the H1 hypothesis by adding the proxy for negatively effected by the financial crisis as another independent variable.

There is no relationship between the capital market reaction and the risk disclosure performance and how the modified equity of listed European insurance groups has
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been affected by the financial crisis. This H7 hypothesis is analyzed by testing for a correlation between the dependent variable of capital market reaction measured by cumulative abnormal returns and the two independent variables risk disclosure quality 2007 and 2008 and the change in equity ratio as a proxy for the effect of the financial crisis on listed European insurance groups. The multivariable regression analysis necessary for hypothesis H7 should improve the predictability of the capital market reaction by including two variables that influence it. The correlation must be statistically significant with a correlation coefficient within the confidence interval and a higher R2 value than in the H1 hypothesis.

4.2. Selection of Variables

The relationship between disclosure of listed European insurance groups and the capital market is well researched (Verrecchia, 2001). However studies that measure the capital market reaction on the risk disclosure performance of companies are rare, due to lacking data. To be able to predict capital market reaction as well as the effort listed European insurance groups make with their risk disclosure the researcher needs a model that is based on measurable variables. In this chapter the implications for the literature in has been the that review are applied to methodology analyzed research the variables and documented how these variables are quantified in order to analyse their relationship during a crisis situation with quantitative research instruments. The behaviour of the capital market is the dependent variable. It is influenced by the risk disclosure performance and the negative effect of the financial crisis on the equity ratio of listed European insurance groups as independent variables. The structure of

institutional ownership is assumed in the literature by Chung et al. (2008) as an independentvariable but is classified as a control variable in this thesis due to a similar
ownership structure among all analyzed insurance groups. The four variables risk disclosure performance, the capital market reaction measured with cumulative abnormal returns, the change in equity ratio as a proxy for the negative effect of the financial crisis and institutional investors are described below.

Risk disclosure performance can be considered an independent variable in the relationship between listed European insurance groups and the capital market during
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crisis situations. Insurance groups can influence the dependent variable with the extent of risk disclosure they pursue. The preference of investors for risk information remains stable over time according to AICPA (1994) and EFRAG (2009) covering blocks such as measuring risk and forecast information. As response to this crisis situation with its dramatic drop in the fair values of investments the investment risk with its three subblocks market risk, credit risk and liquidity risk is added to these blocks and defined as the risk disclosure performance. The disclosure about the three sub-blocks of investment risk empowers insurance companies to explain how the unusual drop in fair value of assets they have invested in affects their recent financial situation and can predict future implications for the financial situation of their group. For the purpose of this research study disclosure about these risk factors in the consolidated financial statements 2007 and 2008 of listed European insurance groups is measured using a check list. The measurement process is described in subchapter 4.3.1. and

documented in appendices A, B and C.

The dependent variable analyzed in this research study is the cumulative abnormal return. It can be considered the reaction of the capital market in response to risk disclosure of listed European insurance groups aggregated in a short period of time. The reaction of the capital market towards risk disclosure has been researched during the Korean crisis situation by Baek et al. (2002). According to them Korean companies with higher risk disclosure quality had a more stable share value over the crisis period then companies that disclosed less risk information (Baek et al., 2002). Although the Korean financial crisis differed from the global financial crisis in 2007 and 2008 a similar response of the capital market towards risk disclosure can be assumed for this research study. But it should be considered that unusual phenomenon in the share price as a response of the capital market towards certain events can exist according to Frino et al. (2009). Two aspects that have come up in the literature review should be applied to the accumulative abnormal return as a dependent variable of this research study. First, the response towards disclosure of the capital market can differ in crisis situation because of psychological aspects that influence the decision making process of investors as analyzed in chapter 3.3.2. Another aspect that can influence the capital market response is the access of private and institutional investors to risk information. As analyzed in chapter 3.3.1. institutional investors do not solemnly depend on financial statements but have access to non structured ways of communication with 78

companies. Both psychological and information aspects can deter the response of the capital market from the assumed response that is based on research by Baek et al. (2005). Whether an unusual phenomenon in the response of the capital market to a crisis situation exists or not can be tested using the "event study method" which measures the development of the share prices at days around a significant event. Share prices are called by the researchers "return" and consequently the deviation of share prices form an individualized industry share index around a significant event is called "abnormal return". The accumulation of all abnormal returns over the period around the event of each listed European insurance group is called "cumulative abnormal return" (CAR). Summarizing the cumulative abnormal returns of all

researched insurance groups is measured in the research result ACAR or Z. The significance and direction of the abnormal return may indicate a phenomenon that requires deeper analysis or it may confirm the assumed response that the capital market holds on to shares of risk disclosing companies so that their share value remains stable during a crisis situation. The measurement process of this dependent variable is described in subchapter 4.3.2. and documented in appendix D. Another independent variable is the change in equity ratio. This variable is necessary as an indicator to classify listed European insurance groups in two categories. On the one hand there are those listed European insurance groups that have not invested in financial instruments that have dropped in fair value as a result of the financial crisis. On the other hand there are those insurance groups that invested heavily in those mortgage portfolio based financial instruments to achieve higher returns. That expected higher return as it turned out in the crisis has been connected to a higher risk that materialized in a drop of the fair values in these financial instruments. Those listed European insurance groups with a heavy exposure to these toxic financial instruments and with significant losses due to their drop in fair value should have reported more about the associated risk to investors via their annual consolidated financial statements. Those insurance groups without this exposure did not need to disclose risk information to a similar degree. Therefore the change in equity ratio is used as a proxy to indicate the degree of investment by listed European insurance groups in toxic assets that have dropped in value during the crisis.

Why is the change in equity ratio a useful proxy for the degree of exposure to these toxic assets? In the recent financial crisis financial instruments quickly lost their market
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value in three ways. First directly by a drop in the value of their underlying mortgage portfolios, second by an indirect decrease of their values due to higher market interest rates when they have been fixed interest rate bonds that led to lower fair values or fourth by default of bond issuers. Lower fair values lead to depreciation of these financial instruments which in time leads to reduced equity and consequently to a loss the The reflects of companies' fair value more ratio ratio. equity reduced equity closely than the figure of depreciation which otherwise seems to be the most relevant figure to analyse the loss in fair value of international insurance groups. However, [AS 39 "Financial instruments: Recognition and Measurement" allows companies to

influence depreciation as a figure with effect on the profit and loss account depending on the (AS 39 categories they place their financial instruments into and to interpret the criterion of "lasting" lower fair values. But equity is affected by drops in these financial instruments fair values regardless of the chosen categories either by impairments or by unrealized losses. An additional reason why the figure of equity ratio is useful for measuring the impact of the financial crisis is that equity is fundamental for companies during a crisis because it increases the possibility of severely hit companies to survive the economic struggle. The measurement of this independent variable is described in subchapter 4.3.3. and documented in appendix E.

The last independent variable in the relationship between capital market and listed European insurance groups are the institutional investors that own a significant part of the equity of those groups. It is analyzed because according to empirical research by Eng and Mak (2003), Hotchkiss and Strickland (2003) as well as Chen and Cheng
(2007) institutional investors as shareholders improve the disclosure quality of listed companies. This theorem is based on the principal agent theory and assumes that long term investors control the management by demanding additional information to be disclosed. Due to a similar ownership structure the variable has the same number for all analyzed listed European insurance group and can therefore be recognized as a control variable. The measurement of this control variable is described in subchapter 4.3.4.

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4.3. Measurement of Variables

In the following subchapters methods are documented that have been used to measure the one independent and two dependent variables and one control variable in this thesis. Starting in subchapter 4.3.1. with the risk disclosure performance the steps lead to its measurement with a self administered risk disclosure index are presented. Then in subchapter 4.3.2. the behaviour of the share market in a crisis moment named cumulative abnormal return as the dependent variable is measured using the event study. After that in chapter 4.3.3. the change in equity ratio as a proxy variable for the impact the financial crisis had on the each listed European insurance company as an independent variable is measured by the change in modified equity ratio in the consolidated financial statements as of 2007 and 2008 of each insurance group. Last the control variable of institutional investors is measured by defining the type of investors and the minimum level of significant influence. This measurement is

presented in subchapter 4.3.4. The measurement methods are stated to increase the reliability of the research. All calculations and results are presented in appendices to this research study.

4.3.1. Self-administered risk disclosure performance measurment

To measure the risk disclosure performance of listed European insurance groups in a self administered risk disclosure index four steps have been taken. As a first step the analyzed content of risk disclosure has been defined. In a second step two checklists for each analyzed financial year have been constructed that are based on weighted categories and a scoring model that is based on investor information preference. The third step has been reading and putting the relevant risk disclosure passages of the consolidated financial statements in the two checklists. The forth and last step has been the calculation of the scores in each checklist and the calculation of an index. Each step is explained in the following. To increase the understanding of assumptions made and decisions taken by the researcher a current research study by Ewelt et al. (2009) is cited and analyzed to provide a contrasting example. In step one the content of risk analysis has been defined based on the results of the literature review and the comparison of accounting requirements in chapter 3. Risk disclosure is analyzed over the time period of January 2007 to March 2009 when the accounting requirements remained fairly stable and two group financial statements 81

have been published by each listed European insurance group. In addition to international accounting standards [AS 1, IFRS 4 and IFRS 7 national German requirements such as GRS 5, GRS 5-20 and GRS 15 are used to provide the categories that listed European insurance groups can fill with their discretionary risk disclosure published in their consolidated financial statements. This category based measurement concept is based on empirical research by Core (2001). Based on the result of chapter 3.1.3. the highest level of risk disclosure required in one of the above mentioned accounting standards is taken as the necessary risk disclosure level in the checklists. This content of risk analysis has been implemented as categories in the checklist for the analysis of the consolidated financial statements 2007 and 2008.

Risk disclosure in the group financial statements 2007 (referred to as pre-crisis) has been recognized according to the investment risk, the measuring risk and forecast information. The content of risk analysis for the financial year 2008 has been modified because during that period of time the crisis worsen and reached its peak. This lead to a change in accounting requirements and offered listed European insurance groups the possibility to disclose additional information to crisis related topics that had become of public interest. The IASB as the standard setter for international accounting standards released amendments to IFRS 7 at the beginning of 2009 (IASB, 2009a). These amendments eased the pressure on companies to write down investments that negatively affecting their profit and loss account by reclassifying assets into other [AS 39 categories. These easing requirements could be considered by listed European insurance groups in their group financial statements 2008 (referred to as post-crisis). Risk disclosure in the group financial statements 2008 included in addition to the above mentioned risk blocks the documentation whether or not listed European insurance groups used the IFRS 7 amendments or not. Additionally the disclosure of the companies about certain urgent topics that came up during the crisis is considered relevant risk disclosure for the analysis of the 2008 consolidated group financial statements. This corporate risk communication on urgent topics has been included as a criteria in the past crisis checklist 2008. In order to find this qualitative information in the consolidated financial statements 2008 on this new category key words have been used. These key words have been selected from an report by Business Insights (2008) "Impact of US subprime crisis on the insurance industry" that provided key words

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relevant to the insurance industry in the crisis. These key words have been reconciled with crisis relevant key words stated by Scharpf and Schaber (2009).
Due to this modification of the risk content. that has been analyzed in the 2008 post crisis consolidated financial statements two checklists have been set up in a second step. The approach to use checklists for the risk disclosure performance measurement is recommended by Chen (2006) and has been used in other studies by Rahman (1998) as well as Cheng and Courtney (2006). These checklists build the data and scoring basis for the self administered risk disclosure index. Such indices have been recommended by Hussainey et at. (2003) for future research on disclosure

performance in the absence of the discontinued US-based disclosure index by AIMR as mentioned in chapter 3.1.2. Critical parts of such self administered disclosure indices are to weighten categories and to score the content of risk disclosure. Both parts are subjectively performed by the researcher and reduce the reliability of the research results. To minimize this subjective influence the information preference of investors published in previous research has been used to weighten categories and to score content in the self administered risk disclosure index used in this research study. Based on research by AICPA (1994) and EFRAG (2009) the three block of investment risk, measuring risk and forecast information have a similar importance for investors that remained constant over the years. However in this crisis situation investors requested more risk information about the prognostic value of companies and about the effects of drops in the fair value of investments on the companies. This crisis based modification of preference is recognized by adjusting the weight of the forecast block categories in the checklist to 40%, the weight of the investment block categories to 35% and the weight of the measuring block categories to 25%. This modification has been applied uniformly in the pre crisis checklist on consolidated financial statements 2007 and on the post crisis checklist on these group reports 2008. Each risk block consists of sub-criteria that are specified in international and national German accounting requirements. The weight of the block had to be distributed among these sub-criteria. This distribution could barely be based on previous research on investor preference because the accounting standards changed too often during that period of time so that empirical studies that collected the preference of investors could not keep up with the speed of change. Only the insurance industry specific adaption of 83

the German disclosure index (see chapter 3.1.2. ) that is published annually by Balzer (2008) provides an orientation for the distribution of weights to the sub-criteria. The weight of sub-criteria such as the amendments of IFRS (IASB, 2009a) or the key word related sub-criteria could not be based on research and have been applied subjectively by the researcher. The weight to each sub-criteria is documented in the checklist 2007 and 208 in appendices A and B. Measuring the risk disclosure performance of listed European insurance groups have been information that judgement the published in their a quality of on require consolidated financial statements 2007 and 2008. All the accounting requirements used to create sub-criteria are vague as to whether only qualitative or quantitative information are required. International standards such as IAS 1, IFRS 4 and IFRS 7 as 5, GRS 5-20 GRS GRS 15 German and such as allow national standards as well depending information different level detailed on the situation of each or of alternatives specific company as analyzed in chapter 3.1.3. In order to compare the risk disclosure performance of listed European insurance groups each published risk information had to be scored according to its usefulness to investors. Former research by Armeloh (1998) discovered in a survey of users of financial statements that they regard Another discovering data informative by the than ones. as more qualitative quantitative information has been that are preferred by specific researcher company same investors to general information. Both preferences have been implemented into this research study by setting up following scoring model. Quantitative information on sub-criteria is rewarded with five points. Entity-specific qualitative information is rewarded with three points. General qualitative information that is not related to specific situation of the listed European insurance group is rewarded one point. When no information on the sub-criteria has been disclosed then done because it is possible to has been been This has subtracted. point one distinguish between information that a company must not or cannot disclose and information that companies just omit. This different approach of companies towards information demands of investors is recognized in the scoring model based on research by Armeloh (1998). This principal of punishing companies that are unwilling to disclose by subtracting points had to be applied to the easying of accounting requirements by IASB (2009). Each listed European insurance group had to state whether or not it has facilitated the choice to restructure their investments into different 84

AS 39 categories. No information on this sub-criteria would result in the deduction of

one point. A negative statement that this accounting choice has not been utilized by the insurance group would result in three points. A listed European insurance group that has used this choice is required to disclose the quantitative effect of the recatogrization on the profit and loss account and equity. The disclosure of this quantitativerisk informationwould result in five points granted.
An additional step has been included into the scoring process in order to increase the transparency and to document the scoring decision. The additional documentation of the scoring process of each sub-criteria should increase the reliability of this research study and enable other researchers to redo the scoring process with the same results. Each sub-criteria included in the pre-crisis checklist and the post-crisis checklist has been thoroughly analyzed concerning its detailed requirements. For this purpose the text of each relevant national or international accounting requirement has been stated. After that the scoring classes have been specified to each sub-criteria. As a result of this additional documentation every scoring process can be traced from the index score back to the score on the subchapter and the company's disclosed risk information out of its consolidated financial statements 2007 and 2008 that in stated in the checklists. The scoring documentation is added as appendix C to this research study. As a third step the consolidated financial statements as of 2007 and 2008 of all thirteen listed European insurance groups have been analyzed. All these financial statements have been accessed via the internet page of the insurance groups. The notes as part of the consolidated financial statements of the researched insurance groups have been read completely by the researcher. Relevant text passages and numbers from the notes have been copied and placed into the checklist. Risk information in the consolidated financial statements 2007 have been included into the pre-crisis check list 2007 and those risk information from financial group reports 2008 have been transferred into the post-crisis checklist 2008. This checklist has been filled additionally with risk information concerning crisis relevant topics that have been disclosed by listed European insurance groups. The crisis relevant risk information has been searched by key-words using the search function of the word-processing programme within the consolidated financial statements 2008 on the companies' internet pages. 85

All results of this third step are documented in appendix A and appendix B. The filled out and rated checklists of all thirteen listed European insurance groups are attached as these appendices.
The process of reading the financial statements, detecting relevant information and copying it into the pre-crisis and the post-crisis checklist has been tested with a dummy financial statements. The consolidated financial statements of ERGO Versicherungsgruppe AG, a company not included in the unit of analysis, has been used to test this. No adjustments or corrections have been done as a result of this dummy testing.

As a fourth step the scores of the checklists have been calculated. A prerequisite for summing up all points is that the risk disclosure of each listed European insurance group has been graded. These grades have been multiplied with the weight associated to each sub-criteria. The weighted grades have been added up to the level of the blocks investment risk, measuring risk and forecast information. In recognition of the critic in chapter 3.1.3. that listed German insurance groups have an advantage because they are required to disclose forecast information whereas other listed European insurance groups do not oblige to similar national requirements two different includes have One that been result of checklist all three block each calculated. results investment risk, measuring risk and forecast information and another result without the scoring of the forecast block have been calculated for each checklist. This differentiation proved useful in the quantitative analysis in chapter 5.1. because the forecast information have been deleted from the further research study in order to have a level playing field of listed national German and European insurance groups. Instead of an index that would level detailed information a variable for each checklist has been created. Therefore a risk disclosure reporting performance 2007 and a risk disclosure reporting performance 2008 have been measured. The degree of fulfilment of the risk criteria have been measured in percentage. A result of each year form 0 to 1 is possible for the risk disclosure performance variable for each analyzed financial year.

Following comparison between a recent empirical study on risk disclosure by Ewelt et al. (2009) and this research study should demonstrate the difficulties in measuring risk disclosure performance. Ewelt, Knauer and Sieweke (2009, p. 706) analyse the risk disclosure performance of thirty German industry groups that are listed in the German 86

share index DAX. The researchers focus on risk disclosure because of the "clearly defined accounting requirements that limit choices of companies" in preparing their group financial statements. This would increase the objectivity of the research study according to Ewelt et al. (2009). The researchers ignore the concept of discretionary disclosure by Core (2001) and the unravelling principal by Leuz and Diehm (2010) to get comparable risk information. By analysing the risk disclosure performance of listed insurance groups form different European countries the concept of Core (2001) and Leuz/Diehm (2010) should be applied in this research study. To illustrate the necessity the formal accounting requirements of IFRS 7 are equal but the risk information disclosed is also based on additional or supplementary national accounting

requirements. This makes it difficult to compare the quality and quantity of risk disclosure. Only by assuming that each listed European insurance group can exceed these differences because an industry wide risk disclosure level is recognized makes a comparison of them possible. The companies analyzed in the research study by Ewelt et al. (2009) exclude listed banks and insurance groups because of their different business model and varying accounting requirements. This limitation creates a homogenous group of companies that can be compared in their risk disclosure, however significant the industries that have been directly affected by the financial crisis like banks or indirectly affected like insurance groups are not considered in the research study by Ewelt et al. (2009). Differing from research by Ewelt et al. (2009) this research study specifies risk disclosure demand of investors according to their long term preference to a specific crisis situation. Rooted in empirical background (PwC, 2007 and Coval et al. 2009) investment risk, measuring risk and forecast information are seen to be relevant to investors in the analyzed financial crisis. These three information parts are the basis of the risk-disclosure checklist that has been used in this research study to measure the risk disclosure performance. These information parts have been operationalized in similarity with the research study by Ewelt et al. (2009) by applying accounting requirements and using their detailed requests codified in the accounting standards as categories and sub-criteria.

The risk information provided by companies in their group financial statements about
these sub-criteria is scored. Ewelt et al. (2009) use a0 to I scale instead of a0 to 5 87

scale as in this research study. In difference to this research study Ewelt et al. (2009)

measures in addition to the quality also the quantity of risk disclosure by companies. This approach is criticized by Schleicher et al. (2007) who states that quantity does not equal quality in the risk disclosure. Other studies used the amount of disclosure measured in pages or words as a proxy for disclosure performance of companies (Botosan 1997, Lang and Lundholm 2000). The approach in this research study is to analyse the quality of risk disclosure performancesolemnly disregarding its quantity.
Another difference in the two research studies is the information preference of investors that is recognized in one and is not recognized in the others research methodologies. Ewelt et al. (2009) assume that investors value every risk information provided in the consolidated financial statements the same way. This general approach is contrasted in this research study as it adapted weighten sub-criteria to crisis situations. Doing so this study approach assumes that investors appreciate certain risk information more than others, depending on what they regard as important during the crisis. The weighten of criteria is based on investor preferences that has been empirically researched, however certain adaptation within the risk blocks have been set subjectively in this research study. Both studies measure the index value as a percentage of the maximum points that could possibly be granted to each disclosure performance.

4.3.2. Measurement of the capital market reaction variable (CAR)

Measuring the cumulative abnormal return of European insurance group shares by applying the event study method at the peak of the financial crisis should indicate any share value phenomenon. The result of this measurement is a prerequisite to verify an analogy in the observation of Baek et al. (2005) gained during the Korean financial crisis that in a crisis situation companies with high risk disclosure performance remain their share value. The test of a relationship between risk disclosure and the capital market reaction measured in the individual cumulative abnormal return of each listed

European insurance group will be performed in chapter 4.3.4. using quantitative research methods.

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The measurement of the accumulative abnormal return of listed European insurance groups that are part of the unit of analysis takes place in five steps. After an introduction to the method as a first step the theoretical background of the event study is presented in a second step. The timing of the event study is critical to the useability of its result. Unlike in other event studies in which a cause and reaction take place at the same point of time this event study is based on a longer lasting cause effect that influences the reaction at a crisis point of time. Not the immediate response of the capital market toward announced trades (Frino et al, 2009) or towards changes in the accounting policies of companies (Cornett et al, 1996) is measured in this research study but how trust based on risk disclosure performance of companies affects the financial decision making of investors during a crisis situation. Assuming a long lasting cause that arises from the publication of annual financial statements the share price effect at a point of time is tested. The reasons why a certain point of time has been chosen to perform the event study are presented as a third step. In a forth step measures to improve the information usefulness of the event study results are described. This is being done by eliminating confounding events that are stated in this section. In the last and fifth step the formulas applied in the event study are listed that build up to the cumulated abnormal return. The event study is based on data that Bloomberg as an independent financial information system provides on a daily basis. The data have been gathered for one hundred share market trading days before and five trading days after the event. For this research study GoldmanSachs provided the share market data.

As a first step the event study is introduced. Event study methodology has been started by Ball and Brown (1968) as well as Fama et at. (1969) and further developed by Brown and Warner (1985). Event studies are designed to examine market reactions and excess returns around specific information events. They measure the impact of a specific event on the value of a firm according to MacKinlay (1997). These studies focus on the relative changes in share price following the effect of an event. Over the years this research method has been applied to a large number of events. Announcements of dividends, earnings, mergers, capital expenditures and new issues of share are a few examples of vast literature in this area (Ross et al., 1996).

What the event study does, it measures the abnormal return of shares during a time period around the event (the "event window"). The definition of abnormal return is one 89

that exceeds the return justified by the riskiness of the investment according to Besley and Brigham (2000). Applied to a crisis situation this definition must be enlarged to lower return that justified by risk due to an overreaction of the capital market caused by psychological factors as stated in chapter 3.3.2. For the period of the event window the abnormal return is contrasted to the so-called "normal return". The normal return is determined by applying the same deviation of the company's share price from. a reference index which had been calculated for a time period before the event window (the "estimation window"). The cumulative abnormal return is the sum of the differences between normal and abnormal return for over the event window. The reference index used in this research study is Bloomberg BINSUR, an industry specific index that includes in addition to the thirteen IFRS insurance groups that are part of the unit of analysis other companies of the same industry that apply national accounting requirements such as US-GAAP. These later mentioned companies are not included in this study. The useability of the abnormal returns for this analysis has been verified by testing the trade volume of each day in the event window. Trade days with low trading volume tend to result in unrepresentative share returns which impair the informative relevance of the event study results according to Andersen (1996). The analyzed trade days all had trade volumes of at least 30% of the mean trading volume of each listed European

insurance group during the longer estimation window. Based on this the results of the event study can be consideredfit for further research according to Brailsford (1996). In a second step the theoretical underpinning of the event study method is presented.
Event study methodology makes the assumptions of rationality in the marketplace so that the effects of an event will be reflected immediately in security prices and that asset returns are jointly multivariate normal and independently as well as identically distributed through time according to MacKinlay (1997). In case these statistical preconditions are not met nonparametric event study tests exist and can be applied according to Corrado (1989) and Cowan (1992). However concerns about the useablility of results from the event study have been eliminated by McWilliams and McWilliams (2000). According to them normal distribution can be assumed despite the limited sample size of thirteen listed European insurance groups in this research

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study. McWilliams and McWilliams recommend the event study method for even smaller sample sizes.
Another central assumption is that the event has been unanticipated by the market participants. In order to verify these assumptions researchers are urged to check for confounding events, that are additional events that took place during the research period and influenced market participants without formerly being addressed in the research analysis. The effects of these confounding events should be eliminated in event studies according to McWilliams and Siegel (1997). The theory which is central to the practice of event studies is the operation of efficient capital markets, and the efficient market hypothesis. As stated by Ross et al. (1996) an efficient capital market is one in which share prices fully reflect available information. Besley and Brigham (2000, p. 315) define the efficient market hypothesis as 'the hypothesis that securities are typically in equilibrium - that they are fairly priced in the sense that the price reflects all available information on each security'. When a share continues to react to an unfavourable development, it often signifies adjustment to the new pieces of information about the situation that has become available, rather than over a long adjustment period. This makes event studies an important tool to analyse market reactions during crisis situations. This ability of the market to adjust to new information comprises the foundation of the efficient market hypothesis (Besley and Brigham, 2000). Event studies are an ideal tool for examining capital market reactions. The results of the event study have a higher information usefulness in those cases where the sample companies have a common characteristic such as being members of the same industry (MacKinlay, 1997). This method can therefore best be used to evaluate the capital market opinion about companies that are similar in size, business model and belong to the industry such as the listed European insurance groups that are being studied in this research project. Although the assumptions regarding rationality and efficiency of the capital market remain doubtful during crisis situations the event study method is applied to this research study because by isolating a single effect within a narrow time frame they control for important differences within firms that cannot be observed by other means according to King and Lennox (2001).

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The timing of the event study as the third step is critical for analysing the relationship between risk disclosure and capital market reaction that is performed in chapter 4.3.3. Not the direct cause and reaction could be tested in this research study but whether or not trust that has been build up with extended risk disclosure holds in a crisis situation. Therefore the timing is essential for the reaction of the capital market and should take place at the peak of the crisis in order to minimize the influence of other factors on the capital market that are not considered in this research study. The event study method as used in this research methodology needs a specified date to be applied to. Previous research by Gonedes and Dopuch (1974), Leftwich (1981), Barth (1994), Barth et al. (1992) and Beatty et al. (1996) used the release of new fair value accounting requirements to test the relationship between companies' disclosure and capital market. Because the release of new accounting requirements or better the relaxation of these requirements (JASB, 2009a and 2009b) has been the reaction of the standard setter towards the financial crisis dates connected to their release could not be used.

The event study with a research date is preferred over research methods that analyse data over a longer period of time using arithmetic averages that do not recognize the character of a crisis and reduce the explanatory power of crisis data. The climax of the financial crisis has been set as a research date for the event study. This point of time can be specific to each industry and it enables researchers to test the relationship between accounting disclosure and the reaction of the capital market shortly before and after the event. The near insolvency of AIG - then the biggest insurance group of the world - on September 14th 2008 has been chosen as the event date because it can be singled out as an unanticipated event of equal significance to all analyzed listed European insurance groups (Goldfarb, 2008). The effect has been unanticipated because on September 16th 2008 AIG's share price fell more than 90 percent according to Brunnermeier (2009). Such massive share price reaction epitomizes the loss of trust that is important for the long term business of insurance. The event study method has been applied and the cumulative abnormal return of each insurance group calculated in an event window of 10 days before and 5 days after the event date of September 14'h 2008. The estimation window is the period starting 99 days before the event date until September 14th 2008. According to Ryngaert and

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Netter (1990) the length of 99 days chosen in this research study as an event window is short enough to capture the significant effect of the event.
Because the near bankruptcy event of AIG took place on a Sunday the information following the publication, particularly of newswire articles, information was made available to investors by news-services and newspapers almost immediately and could therefore influence their trading behaviour from Monday which can be considered the day after the announcement even on the same day of the announcement. In this specific case due to the event on a Sunday the information could not leak prior to its announcement and be used for share trading before the information but has been widely available on Monday when trading started. However, often information has been found to leak prior to the official announcement date so it is possible that the event studied could have influenced the share prices of the days preceding the

announcement (Ross et al. 1996). Therefore, taking the information leakage factor into consideration and knowing that difficulties of AIG were already known the event window includes 10 days prior to the announcement of AIG near bankruptcy at September 14th 2008 and 5 days after (-10, +5). As a forth step two corrections in the event study structure have been made to increase the informative value of its results. The share market data and the event study results included in the event window ten days prior and five days after the event date have been tested for confounding events applying the recommendations of McWilliams and Siegel (1997). It has been checked whether or not active mergers or acquisition processes took place during that period of time that might have influenced the share prices of the researched listed European insurance groups. Doing so the ZEW-ZEPHYR M&A index has been checked for that period. It can be assumed that no such activity took place because the index has been on its lowest level for four years in September 2008 when the event date has been set. The web-sites of the analyzed listed European insurance groups have been tested on dividend announcements during that time and no indication has been found. However September 19th has been a triple witch day on share exchanges with unusual trading activities. Based on recommendation by McWilliams and Siegel (1997) the data and the results of this day have been eliminated from the research study. The same has happened to the data and results from September 8'. At that day floods in China and hurricane season in the US have been topics of the day. Around that date an industry specific gathering of international reinsurers took place in Monte Carlo. Within this

93

gathering reinsurance contracts for future time are closed or previous ones modified. This might explain the unusual share price reaction of this day, because the insurance industry being in the spotlight in Monte Carlo has been sensitive to information about possible claims that arise from the hurricane and floods catastrophes. The elimination of the data of both trade days reduced the data to thirteen from the original fifteen trading days in the event window. By doing so the researcher tried to eliminate trade day results with inducements that undue influence the results of cumulative abnormal

return. The theoretical aspects of the four steps are considered in the application of the event study method. This is documented in appendix D. As a fifth step the formulas needed for an event study and the prerequisite of regression for each listed European insurance group in the market model are presented as follows.
The abnormal return of insurance group shares during the event window can be calculated as the ex post return of the securities over the event window minus the normal return of the firm over the event window according to MacKinley (1997). To price data of securities the Bloomberg 500 Insurance Index called BEINSUR is used. For this event study the constant mean return model is used (MacKinlay, 1997 and McWilliams, Siegel 1997). Although the constant mean return model is the simplest model, its results are often similar to those of more sophisticated models according to Brown and Warner (1980). Normal returns were assumed to be modelled for the share prices by the Ordinary Least Squares (OLS) market model. The calculation of the regression parameters has been performed using a scientific internet site www. arndt-bruenner. de/mathe/scripts/reqr. htm which is freely accessible and verified by applying SPSS as a statistical software.

The rate of return on the share price of insurance group i on day t is expressed as:
R;,, =a+R,,,, +e,,, t where (1)

R,,,=

the rate of return on the share price of insurance company i on day t

94

R,,., = the rate of return on a market portfolio, the Bloomberg Insurance Index BEINSURon day t a, are the regression parametersfor firm i, is the return on the share of each insurancegroup in the sample group for day t e;, t is the residual term or prediction error.

The definition of an abnormal or excess return is one that exceeds the return justified by the riskiness of the investment (Besley and Brigham 2000). Thus, the reduction of excess or less abnormal returns associated with investors trust due to high disclosure performance on crisis related information were estimated by using the OLS market model, solving for the residual term as follows:
ARi,, =Ri,,

-(+Rmt)

(2)

AR,,,= the abnormal return for company i on day t, which is the residual term in the
regression equation. The abnormal return, based on the market model discussed by McWilliams and Siegel (1997) for company i on day t using slightly different denuminations: AR;t = Rit - (at + btRmt)where at and bt are the ordinary least squares (OLS) estimators, calculated over the estimation period, for the market model for insurance group i

R,, = R, = ,
,,

observed arithmetic return for insurance group i on day t the return on the specific insurance index m for day t
or a and b according to McWilliams and Siegel (1997) = the Ordinary Least Squares estimates from the regression of return data on firm i, with index m, for both their respective values during the estimation period days (-100, -11).

Sit= T= K=

the standard error of the OLS market model regressionfor firm i the number of days in the estimation period the number of days in the event window
95

Processto calculate b und a:

Based on the website http: //www. arndt-bruenner. de/mathe/scripts/reqr. htm the parameters and the standard error for each of the listed thirteen European insurance groups have been calculated and verified by applying SPSS a statistical software.

Results OLS analysis for a, b and St:

Allianz 9
AR;t = Rit - (-0.09 + 0,64 * Rmt) St=1,0086665698508985

AXA

AR;t = R;t - (-0,13 + 0,52 * Rmt) St = 0,94959529954217

Generali

ARit = Rit - (- 0,16 + 0,13 *Rmt) St=1,64994748443866

Aviva

AR;t = R;t -( -0,18 + 0,03 * Rmt) St=1,653157058765464

"

ING

ARit = Rit - (-0,1 + 0,56 * Rmt) St=1,1117734391394798

"

Aegon

AR;t = R;t - (-0,05 + 0,51 *Rmt) St=1,127421364502298

"

CNP Assurance

AR;t = R;t - (-0,24 + 0,65 *Rmt) St=1,2868315026554742

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"

Legal & General

AR;t = R;t - (- 0,18 + 0,04 *Rmt) St= 1,6517209442920797

Zurich

AR;t = R;t - (- 0,17 + 0,17 *Rmt) St=1,6294925332317694

"

MunichRe

ARit = Rit - (- 0,06 + 0,73 *Rmt) St=1,2355239115045748

"

Old Mutual

AR;t = R;t - (- 0,19 + 0,0 *Rmt) St = 1,655074658371793

"

Standard Life

AR;t = R;t - (- 0,19 + 0,03 *Rmt) St=1,6531482953882306

"

Hannover Re

AR;t = R;t - (- 0,12 + 0,38 *Rmt) St=1,401592243298169

According to the efficient market hypothesis, firm i's share abnormal return at time t, AR,; should reflect the release of information at the same time. The expected value of AR;, is zero if investors view the near bankruptcy of AIG as not conveying significant information to consider it for their market activities. Therefore, in order to derive at the first for the and respectively a and b excess or abnormal returns every company, parameters were estimated for each firm using a OLS calculation method. These regression parameters resulted from the regression of return data on firm i with index

97

m for their respective values during the estimation period days, which is the interval of
90 days before the event window (-10, +5). Many researchers calculate a standardized abnormal return SAR following Dodd and Warner (1983) where the abnormal return calculated is standardized by its standard deviation: SARit = AR/i / SDit With Wit is the standard deviation or AR;t:

sDit = St

1i+!
+ T2

(Rmt-Rm)

E,

y(Rmt-Rm)

Where R. represents the mean return over the insurance group's estimation period of the insurance index.

CAR

ik SAR W
1=1

;t

Where k is the number of days in the event window. This number has changed with the confounding events that have been taken into account during the research. Thus the number of days considered in the event windows has been reduced from 15 to 13. This formula leads to the individual cumulated abnormal return of each insurance group, which provides a result that can be analyzed individually for each listed European insurance group and used in correlation analysis in chapter 4. It is assumed that the individual values of CAR; are independent and independently distributed and therefore t distribution is used as in the guiding literature by McWilliams and Siegel (1997).

The following equation does provide information about the abnormal return of the
whole research group. Parameter n is the number of insurance groups included in the research sample.

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ACAR

_4n

;=1+TE n2

CAR t-1

it

The average standardized cumulative abnormal return has been -10.1 when the two trading days as confounding events have been eliminated. Alternatively the test statistic Z can be used to express the effect the AIG near

insolvency has had on all listed European insurance groups together.

Z=ACARxThe cumulative abnormal return of 36,5 is significant. It can be stated that the near insolvency of AIG had a significant impact on the share values of the thirteen researched listed European insurance groups. Further analysis will be based on the CAR results of each insurance group. The data, the formulas and the application are documented in appendix D for all analyzed listed European insurance groups. The relationship between the CAR results as the independent variable and risk disclosure dependent in variables will be as ratio equity modified performance as well as change analyzed in chapter 5.2.2.

4.3.3. Change in modified equity ratio 2007 to 2008

The drop in the fair value of derivative financial instruments had a "devastating impact Rahman (1998, to 17). during Korean financial the p. according crisis" companies on These drops all affect the equity of companies that prepare their books according to IAS 39 "Financial instruments" (IASB, 1989). However some listed European insurance group can cope with such a negative financial impact better than other ones. To make the impact comparable ratios can be used that relate the affected equity to assets under management or total assets. Based on research by Nissim and Penman (1999) derive from that be to that tools eliminate effects used research can are ratios equity other economical or accounting related factors and to compare the economic performance of different companies. As listed European insurance groups all had the same ability to add equity from the capital market without a restricting ownership structure. Thus the starting equity ratio as of December 31st 2007 has been similar to

all researchedinsurance groups.

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However change in equity from one financial year to the next does not solemnly consists of the financial results of core business of a company. That is why changes in in is in that investors the to equity statement change according to are equity explained IAS 1 (IASB, 2003) a mandatory part of consolidated financial statements. This statement lists all effects on the equity within one financial year and classifies them. Because no industry-wide description of the classes exist the researcher tried to distinguish and compare all equity effects in the analyzed change in equity statements financial listed European the 2007 2008 in the statements of consolidated and as of insurance groups. Depending on their business structure and their international business locations and activities these insurance groups disclosed in their change in equity statements effects such as reserves for currency transactions, transactions been from have the These tax subtracted effects subsiduaries and effects. among starting equity ratio of all insurance groups. Also accounting effects and factors specific to each listed European insurance group such as changes through shadow accounting, unspecified reserves and changes in pension plans schemes have been from in from the Another starting equity stated subtraction starting equity. eliminated the 2007 consolidated financial statements has been all changes in equity that are not based on core business activities and did not affect the insurance specific performance. These changes relate to own shares transactions and buy back

programs, dividends paid and other distributions made to shareholders, the issue of new share capital and changes in subordinated debt that can be considered as a substitute for equity. Based on the information disclosed by the listed European insurance groups in their been To have in the made. substractions mentioned statements above equity change arrive at ratios the stated equity as of consolidated financial statements 2007 has been factors. The figure business from the resulting mentioned non core all above cleaned for each insurance group has been divided by its total assets stated in their consolidated group financial statements 2007. To arrive at the modified equity 2008 the cleaned 2007 equity is used as a starting point and the above mentioned non core business changes in equity stated in the 2008 consolidated financial statements

substracted. The resulting equity figure has been divided by the total assets stated in the group financial statements 2008.

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The change from these two ratios has been used as an independent variable in this research study. The change in percent from the modified equity ratio 2007 to the modified equity ratio 2008 is the analyzed variable. The economic sense of this variable is the impact by the drop of fair value in investments that had to be accounted for by reducing equity. All disturbing factors that are specific to each company's size, location, organization etc. have been eliminated in order to purify the unrealized losses and impairments on financial instruments. Especially governmental support that have been provided to struggling listed European insurance groups have been eliminated. They appeared especially in the consolidated financial statements 2008 as share issues or subordinated debt issues and have been eliminated in order to provide a same level playing field approach for all listed European insurance groups that are analyzed in this research study. To improve the reliability of this research the measuring method to calculate modified equity ratios are presented in appendix E.

4.3.4. Percentage of institutional investors of stated equity

Institutional investors are considered an independent variable in this research study, however due to their measurement they have become a control variable. Institutional investors control the management with their demand on additional disclosure as analyzed in chapter 3.3.1. In order to arrive at a figure on institutional investors in listed European insurance groups two steps have been taken. First the groups of investors that can be considered institutional must be defined. Second the level of this institutional investors sufficient to assume their significant influence must be set. For this research study institutional investors are defined as families, trusts, significant individual investors, banks or insurance companies. This definition is based on similar empirical research by Chung et al. (2002). More disputed in the literature is the level of institutional investors on the shares that is

necessary for them to have a significant influence on the business activities and the
connected accounting disclosure decisions of the management. The lowest level used in empirical studies is 5% of institutional investors owning of shares by Eng and Mak (2003) as well as Chen and Cheng (2007). Both research studies analyzed single substantial shareholders that can influence the business and accounting decisions of 101

the management. This approach is not followed in this research study because all listed European insurance groups analyzed have such a size and global expansion that a single investor owning shares on this level is unlikely. A higher level of 10% that are directly or indirectly held by institutional investors is used in research by Attig et al. (2006). This level is the same as the one used in a research study by Chung et al. (2002) and will be followed in this study. To gather the information about institutional investors this research relied on the internet websites of the listed European insurance groups that are part of the unit of analysis. Twelve out of thirteen insurance groups provided the necessary information on their websides. The researcher tried to gather the missing data on one insurance group 'Standard Life' by sending emails to the investor relation department that have not been answered. The missing data have been assumed on the basis of the majority of the ownership structure of the other twelve listed European insurance groups. The date the share ownership structures have been analyzed and published on their websites differed among the insurance groups. Ownership analysis dates strayed from year end 2005 to mid 2010 on the websites of the insurance groups. When institutional investors exceed the 10% level they are considered as a1 5.3. All analyzed listed European insurance groups have surpassed and

when they fail to reach this level a0 is measured in the statistical research in chapter the 10%

institutional ownership level by far. All insurance groups are considered in the statistical analysis with their value 1. This makes institutional investor a controlling instead of an independent variable for this research study.

4.4. Research Methods for Data Processing

Data processing includes the collection of data, the processing of data and the analysis of data. These steps are undertaken as a preparation before applying the research tools and partially performed by using computer programmes.

The collection of data has been performed by the researcher to gather data on the variables risk disclosure performance, change in modified equity ratio and institutional ownership of listed European insurance groups. The data on the capital market reaction has been provided by GoldmanSachs and verified in sample by the researcher using Bloomberg information that is accessable via internet.
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The processing of data has been done using Excel sheets that include formulas and other calculations. The processing of the data about risk disclosure performance has been detailed for each criteria and documented in appendix C. The processing of data about the capital market reaction has been done in excel sheets. The different formulas that are applied to calculate the ACAR and Z results are included and step by step documented in the excel sheets which are attached to this document as appendix D for each listed European insurance group. The formulas and connections of data on the capital market reactions have been checked by an independent researcher to avoid mistakes. The data for the modified equity ratio has been collected from the consolidated financial statements 2007 and 2008 of each

insurance group. The method to deduct positions from the equity is documented in appendix E. The data about the ownership structure has been gathered from the internet websites of twelve listed European insurance group. Standard Life as the only insurance group did not provide sufficient data about their ownership. It has been assumed that this insurance group surpasses the level of a 10% institutional ownership share that all other listed European insurance group as well. The processing of the data has been done using 'Statistical Package for Social Science' (SPSS) in Version 17.0 that has been provided by the university. For the correlation analysis a code book with all variables, their SPSS names and coding instructions has been prepared. The analysis of the data has been performed based on graphics. This has been done in order to check the distribution using SPSS and it has been used to cluster the listed European insurance groups based on the change in equity and their risk disclosure performance as of 2007 and 2008. This has been done to detect those insurance groups that have been extremely exposed to risk from mortgage based portfolio financial instruments and did not sufficiently disclose this risk position in their consolidated financial statements 2007 and 2008. These insurance groups can be considered high risk shares for investors. The same has been performed for companies with low equity ratio reduction and better risk disclosure performance. These insurance groups can be considered low risk shares for investors. The clustering is documented in appendix F and G. It has been used as a preparation for the expert interviews that have been applied as qualitative research tools in this thesis.

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4.5. Data and Sample Selection

The selection process of companies that are analyzed in research studies should be based on logical restriction according to Kraft and Nolte (2005). The number of companies that are included in the group of analysis is limited due to two logical restrictions that derive from the literature review in subchapter 3.2.4. The first logical restriction is that similar accounting requirements are necessary to compare risk disclosure performance on a detailed level. The second logical restriction is that all have industry to belong to the a coherent capital same companies should analyzed market response that is not diffused by effects that influence industries in different ways. The first logical restriction that leads the analysis of risk disclosure only over a period of two financial years is that the crisis communication of listed European insurance companies is comparable from January 2007 to March 2009 when all companies applied nearly equal accounting requirements related to risk disclosure. In order to compare risk disclosure and recognizing the absence of external disclosure indices a situational risk disclosure index has been developed. This index is based on categories that derive from international accounting requirements. Because Standards Reporting (IFRS) Financial differ International requirements accounting have been chosen for this research study as the ones that are most detailed on the in To 3.1.3. information IFRS 7 the subchapter analyzed as risk with acting aspect of base the research on this accounting standard reduced the unit of analysis to insurance groups that applied this standard during the researched period 2007 and 2008. This lead to the exclusion of significant listed international insurance groups that applied US-GAAP a different set of US national accounting requirements from this research study. Beside the application of the same set of accounting standards the structure of companies with similar business risks, similar ownership structure, similar listing status and application of similar accounting requirements are a be These limitations to for homogenous analyzed. group of companies a prerequisit lead to a small sample of thirteen listed European insurance groups as predicted in the literature by Core (2001) for disclosure research studies.

104

Referring to the second logical restriction is that including other less homogeneous companies in the unit of analysis would diffuse the causal relationship between the risk disclosure performance and the change in equity ratio as independent variables and the capital market response during a crisis situation as the dependent variable. This diffusion is indicated in Diamond and Verrecchia (1991) as well as Kim and Verrecchia (1994). They recommend that a homogenous group of companies from the same industry should be chosen in order to limit inter-industry effects and other hard to analyse relationships. Instead of banks that were affected differently from the crisis depending on being either an investment bank that sold crisis related financial instruments or a saving banks that bought them, being in the US or in Europe, having made acquisitions before or grown by themselves, insurance companies were chosen as the single industry analyzed in this research study because they were not directly related to the sub-prime crisis. Beside impairments on their financial instruments with mortgage portfolio underlying - which also happened to other financial companies their relationship with investors was affected by a single event. This allows the use of the event study method to analyse the effect of this single event on a limited number of listed European insurance groups. Due to this indication financial groups other than insurance business related are not included in this research study and insurance companies with a similar business structure and product portfolio have been chosen. The researched financial crisis can be characterized by the drop of fair value in mortgage portfolio based financial instruments first. That drop has been followed by a decline in the fair value of other investments that lasted longer than one financial period. This market development has affected the insurance industry as a pool of investments by its business model most severely and uniformly whereas the affect on banks depended on their degree of activities in the securitization of mortgage based financial instrument, their exposure in certain regions of the world and their mix of business activities.

Following this argumentation only a unit of analysis consisting of thirteen listed European insurance groups has been selected as a sample for this thesis. This size might restrict the information usefulness of quantitative methods. A generalization from the behaviour of thirteen insurance groups can be misleading when applied to companies from a different industry, size or groups that disclose accounting
105

information based on country specific accounting standards. This problem is recognized and solved by using a mixed method approach in this research study. By using qualitative methods statistical research results based on the existing unit of analysis are triangulazed and improved. In the structured interviews with experts in the field of listed European insurance groups statistical results from quantitative methods of this thesis are verified by experts that do not take part in the preparation of financial statements and can be considered as independent in their opinion.
By focussing on the insurance industry in this research on risk disclosure a lack is closed that other studies on disclosure like Ewelt (2009) leave when they exclude insurance groups from their unit of analysis because of their unique business model and the specified accounting regulations. So this research study that is based on a small unit of analysis follows the recommendation complement existing large sample studies with by Fields et al. (2001) to research study that analyse

accounting effects with small sample studies. This is done on insurance industry specific risk disclosure during a crisis situation.

106

Chapter

5. Research Methodology
The hypotheses will be tested using quantitative and qualitative research tools. However, by choosing these tools and by setting the research methodology the researcher brings his personal touch to this study. This influencing factor that is recognized as the epistemological presuppositions of the researcher by Girod-Seville and Perret (2001) is analyzed and stated in chapter 5.1. Other factors that influence the methodology as well as limit the usefulness of the researched results are the assumptions made for this research study that are stated in chapter 5.2. The research methodology is detailed in chapter 5.3 and 5.4. The statistical relationship between the variables is topic of chapter 5.3. In this chapter the search for correlations between the variables is documented as well as the attempt to find causal relationships between more than two variables applying regression analysis although the statistical

prerequisites for this statistical method are not met by the small unit of analysis in this research study. Chapter 5.4. introduces structure interviews with experts as qualitative methods to triangulize the statistical results as part of the mixed method approach. In this chapter the experts commented on the theoretical assumptions, the research structure, the statistical results and the relevance of the research results on future accounting standards. Chapter 5.5. states confidentiality aspects and ethical

considerations of the research.

The goal of chapter 5 is to provide transparency

on the methods to analyse

relationships among variables. The results of the methods described in this chapter and whether or not the hypothesis as the implementation of the research question can be falsified or not are content of chapter 6 'Results and Discussion'.

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5.1. Epistemology
According to Girod-Sevill and Perret (2001) two epistemological questions should be answered by the researcher to disclose his personified influence on the study. One is his understanding of knowledge and the second are the ways the researcher takes to produce this knowledge. The understanding of knowledge has been influenced by the literature review in chapter 3. Based on this literature review the researcher found out that the behaviour of listed companies and capital market participants is based on economic theories that are constant. Regardless of the statistical insufficiency this allows the researcher to use statistical tools in order to predict investor's behaviour on extended risk disclosure according to theories and test it. This approach can be considered a model that the researcher affiliates himself with according to Kuhn (1962). By measuring variables and analysing their relationship using statistical tools, the researcher belief is that objective knowledge will be gathered in this approach. The benefit of this positivist approach is a high degree of confirmation and logical consistency according to Girod-Seville and Perret (2001). However subchapter 3.3.2. about psychological factors that influence capital market participants and is impossible to include as a variable in this research approach proofed that emotional factors influence the decision making of investors. This questions the positivist approach which is based on a model that recognizes all influencing variables. Considering this capital market participants are integrated in a social systems and tend to act within one. This consideration is supported by the "herding theorem" in subchapter 3.3.2. which describes that individual investors tend to rely on the decision of other capital market participants and do not decide on a pure rational basis. Considering this in the research study social factors of investors need to be recognized considering a critical realism paradigm of the researcher.

The dual paradigm approach

in researchers

the understanding

of knowledge

influences the way this research is pursued. The methodology of this research recognizes economic theories and develops a model in order to predict the behaviour of the capital market in a crisis situation. Considering the social context in which financial decisions are taken by individual investors both paradigm should be used to answer the research question of this study. The positivist and critical realism paradigm should be combined to a multi paradigm perspective that is applied to this 108

research in a mixed method approach. Based on the literature review the researcher developed the theoretical cause and effect model and created hypotheses. After this abductive process the hypotheses are tested using an event study and correlation statistics as a hypothetico-deductive process (Chalmers, 1976). To triangulate these results interviews with expert users of financial reports are held in order to explain the results implemented in the mixed method approach. The results of the quantitative event study are analyzed with a qualitative approach. This mixed method approach in the research of disclosure was suggested by Beattie et al. (2004). Interviews are held with experts specialized in the field of European insurance companies from banks or rating agencies. The combination of these two approaches is defined as

methodological triangulation (Yin, 2003) and allows the researcher to benefit from the advantages of the quantitative and the qualitative approach (Baumard and Ibert, 2001). The quality of the quantitative event study is impaired by the small sample size. However the sample size cannot be extended to other Insurance groups, because they differ in size and structure or follow other accounting requirements than IFRS. Interviews with preparers of group annual financial statements are dismissed because of their personnel involvement with the company and their inability to freely disclose the motives of their accounting decisions. The information provided by experts and analysts can be biased by their need for justification of the financial judgements they have made about the companies. The combination of both

approaches using statistics and interviews enhances the quality of the research study. Another aspect of epistemology is the degree to which the research results can be generalized and transferred. To achieve this, the validity and reliability of the

research should be considered in the research methodology. Validity represents the relevance and the precision of research results that correspond with the extent to which the research results can be generalized according to Drucker-Godard et al. (2001). Although the concept and the measurement of the tools used in this research study are scientific standard and explained in detail in chapter 4.3. due to the research subject the results can hardly be generalized to other research situations. This research focuses on a financial crisis situation that has been considered unique in regard to its intransparent risk situation by Baetge et at. (2008). To catch the risk information published by insurance companies in their groups financial statements as of 2007 and 2008 accounting standard based criteria have been selected and 109

extended by key words special to this financial crisis in analogy of research by Chen (2006). Although the criteria have been weighten based on preferences used before the crisis (Armeloh, 1998) the measuring of the disclosure performance based on an

index cannot be generalized to other non-risk related parts of group financial statements. As a result the specification to the financial crisis 2007/2008 reduces the
ability to generalize the results of this research study. Another aspect of epistemology is the ability to transfer the results. This is possible when the study could be repeated by another researcher or at another point in time with the same results according to Drucker-Godard (2001). To increase this reliability all procedures to measure and analyse the variables are described in detail in the subchapter 4.3.1. and 4.3.2. Additionally the checklists filled for all listed European insurance groups are documented and attached as appendices A and B to this research. As a further step to increase reliability all assumptions made in the research methodology are documented in chapter 5.2. All these means and documentation are provided to the reader for transparency purposes. Contrasting these reliability improving procedures certain limits exist. A recent study on risk disclosure by Lenz and Diehm (2010) however illustrates that in this research field limits must be accepted until technical improvements occur. Lenz and Diehm in their empirical study state that "selecting the types of risk to be analyzed and choosing the category the risk is refered to is based on a high degree of subjectivity" (Lenz and Diehm, 2010, p. 391). However they stress the fact that the setting of a research method in risk disclosure research is based on subjective decision they point out that this critical point applies to the majority of empirical risk disclosure studies namely Kajter (2001), Bungartz (2003), Vielmeyer (2004) and Filipiuk (2008). The researcher faced the problem that corporate governance policies prohibit most rating agencies to discuss their policies and judgment with non-clients. As a result only one rating agency has been willing to discuss questions with the author of this dissertation under anonymity. Due to this lack of qualified experts the researcher extended his search for experts by looking for other knowledgeable users of financial statements of listed European insurance groups. Those users have been selected based on whether or not they represented a certain group of users of financial statements of listed European insurance groups. Contacting the experts has been

110

based on personal recommendations by friends and collegues of the author of the

dissertation.

Another weakness in the risk disclosure research is that due to the high manual effort to read, extract, compare and rate risk information in group financial statements this

Lenz Diehm by is researcher. and another parallel not performed analysing process (2010) state that the analysis of group financial statements has been performed by Diehm only. His research results have not been double checked by performing another analysis of the same group financial statements by another researcher. They admit that this research procedure restrains the objectivity of the research and sets limits to its reliability. Lenz and Diehm (2010) suggest that computer based methods to analyse qualitative risk disclosure in group financial statements should be developed and
applied in further research.

Certain steps to increase the reliability of this research study have been done by This to this the work. as appendices step results research of nearly every adding insurance to trace the an group of statement relevant reader any risk enables
disclosed in their group financial reports to the checklist, to the scoring process and to the risk disclosure performance. This transparency in the research should increase the transparency of this research methodology. However restrictions concerning the subjectivity of the analysis remain. Because they are common in the leading empirical studies on risk disclosure they are accepted as a given in this research study. The this the because due to low the of research emphasis remains validity of research hardly be its financial generalized. can results situation a specific crisis study on However they can indicate how listed European insurance groups act on other sensitive accounting information that may be required by future fair value measuring and disclosing international accounting standards.

5.2. Assumptions
To research the relationship between risk disclosing listed European insurance groups and the capital market assumptions have been set. Several assumptions are set in regard to variables researched and other assumptions are implied in the research methods applied in this research study.

111

Following assumptions are made concerning the risk disclosure performance of listed European insurance groups that is included in this study as a variable.

Although the preference of investors about the type of risk disclosure has been analyzed by AICPA (1994) and EFRAG (2009) the preference of investors to have or not to have risk information has to be assumed. Lenz and Diehm (2010p. 387) call it the "unravelling principal" that investors assume the worst risk situation when they are not provided with entity-specific risk information. Based on this assumption there is an incentive for the management to extent their risk disclosure in times of crisis. This leads to implications in the measuring of the risk disclosure performance when it is assumed that listed European insurance groups are willing to exceed the requirements set by international accounting standards to meet the expectation of investors taking an active approach towards risk disclosure. Additionally it implies in the measuring process that little disclosure of risk information or the statement that such a risk is not present is regarded higher than no risk information at all.

According to empirical research by Kajter and Winkler (2003) companies prefer to disclose unspecific general risk information instead of individualized risk information specific to the company. On the contrary investors need company specific information to ensure rational financial decisions. Because quantitative risk disclosure must be company specific whereas general risk can be described qualitative investors prefer quantitative risk disclosure. In a crisis situation the assumption of constant information requirements by investors set in empirical studies like Sengupta (1998) should be modified. Companies that hold greater risk shall provide more information than companies with smaller risk. These assumptions are implemented in the measurement of risk disclosure performance in subchapter 4.3.1.

Following assumptions are made concerning the capital market participants, whose reaction is analyzed in this study as a variable.

It is theorized that timely, extended and specified disclosure of insurance companies about financial investments such as those that originated the crisis enhances the company's credibility and causes their investors to respond favourable towards the
company during a crisis (Vater et al., 2008, p. 2606). This company - shareholder 112

relationship has been researched simulating crisis situations and empirically testing an increase in the purchase intent of stakeholders to buy a product of the disclosing company (Arpan and Roskos-Ewoldsen, 2005, p. 430). Along the same lines previous research by Diamond and Verrecchia (1991) and Kim and Verrecchia (1994) indicates that in a crisis situation investors are more likely to hold on to shares of companies that raise their confidence by a long track record of discretionary disclosure is applied to a crisis situation. Consequently each company's disclosure performance is measured by analysing the group financial statements of companies in 2007 and 2008 are analyzed and to find statistical evidence that those listed European insurance groups with high performance are held and not sold by their shareholders during the peak of the financial crisis. Pre crisis experience of investors with the insurance company is a key predictor of the investor's evaluation of the company during the crisis according to Arpan and Roskos-Ewoldsen (2005). The assumption that investors that are informed about risk do not sell the shares they own of that company during a crisis situation is implied in the quantitative methods that analyse the relationship between risk disclosing and share prices of listed European insurance groups in subchapter 5.3.1.

Following assumptions are made concerning the measuring of the capital market reaction, the quantitative and qualitative methods used in this research study

Measuring the capital market reaction certain assumptions are made when using the event study method. The assumption of market efficiency as the basis of the event study method is provided with short event windows according to McWilliams and Siegel (1997). However market efficiency is impaired during crisis situations. Therefore the trade volume of each share per day is considered in order to determine that the financial market is not inactive or tight so that it still can provide accurate share prices. With a minimum trade volume defined by Brailsford (1996) each insurance group has been tested on a sufficient trade volume during the event window. The normal distribution of the researched data in the event study can be assumed, because McWilliams and McWilliams (2000) assume it for smaller sample sizes than in this research. Another assumption for the use of the event study is that the event has been unanticipated. Although a crisis develops the near insolvency of the then world largest insurance company AIG can be assumed as unanticipated due to the magnitude of this event. Outliers have been identified using the indirect and direct approach by 113

McWilliams and Siegel (1997). As a result the data of three days within the event window have been excluded from the research as detailed in subchapter 4.3.2. The amount of statistical data gathered based on the unit of accounts restricts quantitative research methods. This restriction is accepted for this research study because the risk disclosure quality can only be compared between groups that apply the same accounting standards, that have a similar business structure and that account based on a constant set of rules over a period of time. It is assumed that the resulting population of thirteen listed European insurance group is sufficient to be statistically analyzed, although certain preconditions on normal distribution or sufficient sample size might not be met. Due to the application of a mixed method approach the verification of these insufficient statistical results by expert interviews is assumed to be enough.
Applying quantitative methods certain assumptions about the type of experts that have been asked to participate in this research study have been made. Experts in the field of European insurance industry have been asked on the research methodology and results. Those experts cover the full range of users of groups financial statements representing the buyer-side, the seller-side, transaction bankers and rating agencies. Preparers of financial statements have not been included in this group, because it is assumed that they are not sufficiently objective. Being responsible for preparing consolidated financial statements of listed insurance groups it is assumed that these managers are not in the position to switch sides and commend from an investor side on the information that they provided themselves.

5.3. Quantitative Methods

The hypotheses are detected and tested by finding the relationship between the dependent and the independent variables using two different quantitative methods. According to Pallant (2007) these methods explore in a first step the association between pairs of variables by testing their correlation and in a second step predict capital market reaction as a dependent variable towards the two independent variables risk disclosure performance and equity ratio by testing multiple regressions.

Institutional investors are considered a controlling variable, because all listed European 114

insurance groups have the same high level of institutional ownership in common that they all share the same data (see subchapter 4.3.4.) that is considered in quantitative methods. In the following subchaptersstatistical test for normality are performed before methods
to detect and test the relationship are applied. This is as a preparation for the results that are documented in chapter 6 'Results and Discussions'.

5.3.1. Testing for Normality

Testing for normality of the distribution determines the statistical research techniques that either parametric or non-parametric tests can be applied. The testing for normality has been performed for the dependent variable capital market reaction and the two independent variables risk disclosure performance and change in modified equity ratio. Three tests are applied to test the distributions of the variables. The 5% Trimmed Mean removes the top and bottom five per cent of the cases and recalculates a new mean value. Comparing the original mean with the trimmed mean shows the effect extreme scores have on the mean. The second test is the analysis of the distribution concerning skweness and kurtosis. Negative results on skewness present a

distribution that leans to the right. Positive skewness results present a distribution that leans to the left. If a kurtosis result is negative, the distribution will be flat. If the kurtosis is positive, the distribution will be peaked. This test provides information about the form of the distribution that might falsify the assumption of normal distribution. The third test is the Shapiro-Wilk test that is applied to small samples and that is more rigid than the Kolmogorov-Smirnov test that is considered as additional information (Field, 2009). A result of more than 0.05 indicates a normal distribution. A result of 0.00 indicates a violation of the assumption of normality.

5.3.2. Setting of the confidence interval

The confidence interval is necessary to decide whether or not hypotheses are true or not. The Pearson correlation coefficients of all relationships analyzed in this research study are different from zero. Therefore a correlation between the variable other than the controlling variable exists. It should be determined if the results of the correlation analysis are significant enough to falsify or verify the hypotheses.

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In order to do this all data on correlation results can be converted into data that has a mean of zero and a standard deviation of one that are called z-scores according to Field (2009). The z-scores set individual confidence intervals for each Pearson correlation coefficient. They have been calculated based on an SPSS syntax that is freely accessable via a companion website published in the statistic book of Andy

Field at www. saaeDub.co. uk/field3e.

The z-scores are used to construct a 95% confidence interval for each of the six analyzed correlations among the four variables. The variables are risk disclosure
performance 2007, risk disclosure performance 2008, change in modified equity ratio and cumulative abnormal return that are tested for the following six correlations.

The two variables risk disclosure performance 2007 and change in equity have a lower boundary of confidence interval of -0.751 and an upper boundary of 0.259. The two variables risk disclosure performance 2007 and 2008 have a lower boundary of confidence interval of 0,082 and an upper boundary of 0.867. The two variables change in modified equity ratio and risk disclosure performance 2008 have a lower boundary of confidence interval of -0.757 and an upper boundary of 0.245. The two variables cumulative abnormal return and risk disclosure performance 2007 have a lower boundary of confidence interval of -0.267 and an upper boundary of 0.747. The two variables change in modified equity ratio and cumulative abnormal return have a lower boundary of confidence interval of -0.141 and an upper boundary of 0.799. The two variables risk disclosure performance 2008 and cumulative abnormal return have a lower boundary of confidence interval of -0.398 and an upper boundary of 0.674. When the Pearson correlation coefficients for these variables that are normally distributed are within the boundaries of the confidence interval, then the correlations can be assumed significant and the hypotheses can be falsified. A confidence interval for multiple regressions cannot be set, because according to Pallant (2007) the sample size is too small so that the researcher cannot rely on the results. The result of the analysis on multiple regression is therefore taken as an indication that is not pursued further statistically but is included in the structured interviews with insurance experts that are utilized to triangulize this result. Table 1: Confidence intervals 116

Correlationbetween

Hypothesis

Risk disclosure performance 2007 Risk disclosure performance in 2008 Risk disclosure performance in 2007 Risk disclosure performance 2008 in Change modified equity ratio
Risk disclosure

Cumulative abnormal return Cumulative abnormal return Change in modified equity ratio Change in modified equity ratio Cumulative abnormal return
Risk disclosure

H1 H1 H2 H2

Lower bound of a 95% confidence interval for r -0.267 -0.398 -0.751 -0.757

Upper bound Significance of of a 95% r confidence interval for r 0.747 0.274 0.674 0.259 0.245 0.799
0.867

0.530 0.262 0.242 0.131

0.026

H5
H6

-0.141
0.082

performance in performance in 2007 2008 A confidence interval for hypothesis H3 has not been calculated because all listed European insurance groups have institutionalinvestors. A confidenceintervalfor hypothesis H4 has not been calculated because no correlation is measured. A confidence interval for hypothesis H7 has not been calculated because it is a multivariate analysis that is not used for statisticalpurposes but only as an indicationfor the qualitative analysis.

5.3.3. Correlation analysis between two variables

Correlation coefficients as the product of correlation analysis provide a numerical indication of the direction and strength of the linear relationship between two variables
indicates the (2007). to Pallant A coefficient or correlation negative a positive according development of one variable when the other variable increases. The size of the correlation coefficient indicates the statistical strength of the relationship. In a first step it is tested in this research study whether or not the relationship between two variables is linear or not. The kind of relationship being linear or not-linear determines the type of

That is Pearson in this the study. research part of correlation coefficients used
Spearman's test (r) for linear and a parametric relationships as correlation coefficient Rank Order Correlation (rho ) for curvilinear relationship as a non-parametric test according to Pallant (2007). The results of the correlation coefficient used need an interpretation in order to be facilitated in this research study. The strength of the relationship between two analyzed variables can be interpreted based on Cohen (1988, p. 79) that a correlation coefficient of r=0.30 to 0.49 is considered medium strong and of r=0.50 to 1.0 is considered very strong. However individual confidence

intervals that recognize the distribution of each variable are recommended by Field
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(2009). Because the statistical sample that is based on the unit of analysis with only thirteen listed European insurance groups is quite small z-scores are calculated in order to set improved correlation specific confidence interval that are necessary to verify or falsify the hypotheses from chapter 4.1. Additionally the coefficient of determination R2 is used to explain the amount of variability in one variable that is shared by the other variable according to Field (2009).

5.3.4. Regression between multiple variables

Multiple regression techniques are used to explore the relationship between one dependent and a number of independent variables according to Pallant (2007). Applied to this research study the relationship between the capital market response as a dependent variable towards the risk disclosure performance and the proxy of change in modified equity ratio is tested using a standard multiple regression. According to Pallant (2007, p. 147) this approach explains 'how much unique variance in the dependent variable each of the independent variables explains'. The variable of institutional investors is indirectly recognized as a control variable because its value is 1 with twelve out of thirteen listed European insurance groups that are part of the unit of analysis. Lacking data on the thirteenth insurance group is assumed to be similar to the other groups with a value of 1, too. Multiple Regressions are performed because they allow 'a more sophisticated exploration of the

interrelationship among (... ) variables' than the correlation analysis according to Pallant (2007, p. 146). The knowledge gain of this method is that it is able to predict a particular outcome of a certain combination of variables.. This would support the idea of Baiman and Verrecchia (1996) that an optimal level of risk disclosure exist, even when the referring dependent variable is not cost that has been critizised by Vielmeyer (2004) but share price stability measured using the cumulative abnormal return as described in subchapter 4.3.2. The variable that is a proxy for the effect the crisis had on the equity of each listed European insurance group can be controlled for to set this optimal level. Using a standard multiple regression to achieve this requires certain conditions that are not completely met in this research study. The small sample size that has been used in this research study in order to maintain a high quality information level of the risk disclosure variable hinders the application of multiple regression tools. According to Tabachnick and Fidell (2007) the required sample size for a regression 118

analysis with two independent variables in analogy to this research design would be 66 listed European insurance groups. This number cannot be achieved without comparing financial companies with different business models, different global reach and different accounting standards they apply. To base this risk disclosing research on sufficiently large group of analysis would lead to unspecific risk disclosure data. The response of the capital market towards non industry specific risk information diffuse the cause and effect relationship because the financial industry has been affected by the crisis situation differently depending on their individual business model and exposure to USmortgage based financial instruments.

Although the statistical assumptionsfor multiple regressions are not met it is continued. The results may be invalid from a statistical point of view. They can be used however as indications that can be verified or refused in the structured interviews that are performedwith experts in the insurance industry as described in the following chapter.

5.4. Qualitative Methods

By applying mixed method research using an explanatory design the shortcomings of the research methodology especially in the small unit of analysis that restrains the explanatory use of its statistical results are overcome. Mixed methods according to Baumard and Ibert (2001) are used to expand the results of the statistical analysis. To gain an in-depth understanding of the relationship between risk disclosure quality and the capital market reaction experts interviews are applied. Statistical analysis from the positivist perspective and expert interviews from the constructivist perspective are applied in this mixed method research approach. Both methods are sequenced and combined to maximize the understanding of the relationship in a crisis situation. The statistical results can be explained by experts (Morse, 1991) and those international insurance groups that are most relevant in the crisis can be selected for a follow up analysis (Tashakkori and Teddlie, 1998).

Selecting those international insurance groups that have been analyzed in the interviews is done by clustering them as documented in appendix F and appendix G. The thirteen insurance groups are clustered according to how they were affected by the crisis (change in equity ratio) and their risk disclosure performance. Those three international insurance groups that were negatively affected most and disclosed least
119

for Those the three dangerous be the capital market. cluster most can regarded as insurance groups that were affected least and disclosed most can be regarded as the most beneficial ones for the capital market. These six international insurance groups As Managers interview in with experts. experts and analyzed structured are contrasted of rating agencies as well as bankers and institutional investors, who are not involved in the preparationof financial statements and with expertise in the insurance sector are asked for structured interviews. The interviews shall focus on specific quantitative finding that need additional explanation (Creswell and Clark, 2007). The following research method of structured interviews has been used in this research study. Five one-on-one telephone interviews have been undertaken during the January 2011. The 2010 to from December in time the of process period research insurance listed European field in the in interviews these of were qualified participants groups by their daily work.
The participants have been chosen according to their business position and their expertise in the field of listed European insurance groups. They are working at international banks that recommend shares of insurance companies their clients to buy, at investment banks that provide transaction services such as acquisitions of insurance companies and therefore follow them, at funds that buy shares of insurance companies to put them into their portfolio that they hold for their customers and at rating agencies that provide clients with their opinion about the financial strength of listed European insurance groups. The work-places of these participants represent insurance for European financial the that groups of statements are using group experts their business activities. They are not included in the preparation of these statements themselves. The participants selected for interviews represent the buyer-side by funds managers, the seller-side by bank managers and the rating-side by managers of a rating agency. Managers working in listed European insurance groups that take part in the preparation have not been included in the research study. It is assumed that they be held that they financial in biased could statements about answering questions are legally responsible for. The participants have not been selected randomly. Due to a low response rate from emails asking banks and rating agencies for a interview opportunities a different approach has been chosen. Based on the recommendation by friends and collegues personalized emails have been sent asking for an interview. This 120

increased the response rate and allowed the researchers to cover buyer-side, sellerside and rating-side as users of consolidated financial statements of European insurancegroups with expertise on the researched group of analysis.
The interviews were undertaken in a semi-structured way. This allowed the researcher to broach a series of subject areas defined in advance (Ibert et al., 2001). Recognizing the limited time participants were able to allocate to these interviews topic and subtopics as well as questions were sent to them via email at least two days in advance. This interview guide has been used to ensure that the same basic line of inquiry is pursued with each expert who is interviewed (Patton, 2002). These 'guidelines for a structured interview' as documented in appendix H have been pre-tested by a banking expert experienced in the field of European insurance groups who has not been taking part in the later interview process in order to increase the reliability of the qualitative data (Ibert et al., 2001). The interviews lasted between thirty minutes and one hour. As the interviews have been scheduled before or between meetings of participants the structured questions allowed an efficient use of the limited period of time available (Patton, 2002). All participants asked for not being recorded so their answered were written down by the researcher and later completed. The documentation of these interviews has been sent to each participant and has been confirmed by each expert. Ethical issues have been recognized in the guidelines that were sent to all participants ahead of the interview and mentioned verbally at the beginning of each interview session. As a response the majority of participants opted for anonymity. The

participants told the researcher that corporate governance and internal requirements prohibit them to provide information or an opinion about the researched listed European insurance groups.

The topics and questions discussed in the semi-structured interview reflect the theory, structure and results of the quantitative research part. Using interviews experts were asked to comment on each part. The questions asked related to four sub-topics. The three research variables were three sub-topics and the other sub-topic the wider implications of the researched risk disclosure on the accounting process and the future of accounting standard setting. The sub-topics are the effect on equity ratio, the risk disclosure behaviour, the capital market functionality as the three research variables

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and the sub-topic of overall questions. Four questions on each sub-topic added up to sixteen questions overall.
Aside from the sequence of the questions the purpose of the interviews has been to verify the implied theory, the research methodology, results of the quantitative analysis and to ask experts about future implications. The implied theory has been discussed with the experts in three questions that focused on the theoretical background of the research. The purpose of this approach was, to gather the opinion of experts on theoretical assumptions between the relationship of corporate risk disclosure and the capital market that have been used in research studies but that have been questioned and specified in the face of financial crisis situations. The first question has been about the ability of the capital market to integrate all available information in its decision making process as assumed by Blackwell and Girshik (1954). The second question asked the experts on the predictive value of disclosed risk information. This question specifies the assumption of Blackwell and Girshik (1954) to financial crisis situations. As researched by Lenz and Diehm (2010) it would enable experts to predict the effect a crisis would have on the listed insurance groups based on its disclosed information ahead of the crisis. The other theoretical question asked the experts about the relationship between risk disclosure performance and how the capital market recognized this activity. Although this relationship has been thoroughly researched by Welker (1995), Sengupta (1998), Healy et al. (1999), Botosan and- Plumlee (2002) as well as Lambert et al. (2007) it has been questioned recently whether or not it can be applied to crisis situations by Menz and Nelles (2009) who could not empirically support this relationship during a crisis period. The research methodology has been discussed with experts in six questions. This research has focused on the insurance industry, on specific insurance groups, assumed preferences of investors regarding information disclosure, the proxy of equity ratio as a way to measure the negative effect of the crisis on listed insurance companies and has used the event study method at a certain point of time assuming it to be the peak of the financial crisis. The purpose of these questions was to discuss the research methodology with experts in the business field and not in the academic 122

field where they are either uniformely accepted like the event study method (McWilliams and McWilliams, 2000) or rarely discussed like proxies or investor preferences. This approach did not work in regard with the event study method that

was unknown to the experts, however it has worked out with the preferences that supported studies by Al CPA (1994) and EFRAG (2009).
The results of the quantitative research that analyzed the statistical correlation of the three research variables have been discussed with experts in six questions. The focus of these questions has been to explain the weak statistical relationship between better disclosure quality and a better opinion of the capital market of the disclosing company. This has been specified by clustering the researched listed European insurance groups. The cluster in which companies have been negatively affected by the financial crisis and did not disclose much information about their equity destroying structured financial instruments like Asset Backed Securities, Commercial Mortgage Backed Securities, Residential Mortgage Backed Securities and Collateralized Debt

Obligations (Scharpf and Schaber, 2009) have been subject of questioning to experts. In addition to that questions have been asked about the opposite cluster of listed insurance companies that were less affected by the crisis and provided a lot of information. These questions however could not be answered by two of the three experts due to corporate governance regulations of their companies. The last question has been about a paradox in the relationship between disclosing companies and the financial market with that is statistically relevant. The capital market detected those companies that have been affected worst by the crisis way before they disclosed information about their risk. This paradox. has been explained by the experts. The future implication of the research has been the last question to the experts. All experts related this question to efforts of the accounting standard bodies to introduce market related fair value measurement to both sides of the balance sheets. The disclosure of fair values can been considered as sensitive as the disclosure of risk information about structured financial instruments during the financial crisis. With this analogy the researcher tried to determine a constant preference of listed European insurance groups not to disclose information they consider sensitive. The purpose of this question is to broaden the research results to future accounting matters and to other aspects of the communication between listed companies and the capital market. 123

Although the answers of the experts are not specific they provide an idea about the topics that can used in future research studies.

5.5. Confidentiality

Considerations Ethical and

To analyse confidentiality and ethical aspects or this research study the data gathering and the results must be distinguished. As far as the gathering of data infringes individual and organizational rights, the results do not place a threat towards these rights. The research study is based on publicly accessable and private date. Listed European insurance groups are required by national law or listing requirements of share exchanges to disclose annual consolidated financial statements. When these statements are prepared according to International Financial Reporting Standards (IFRS) they must include risk information according to IFRS 7 in the researched period. These risk information is publicly accessable to everybody. The analyzed listed European insurance groups all present this information voluntarily on their corporate websites. The structuring of this data in categories and scoring them has no effect on the organization or any individual. The same can be said about the quantitative analysis using statistical methods to research the relationship between risk disclosure,

change in modified equity ratio and capital market reaction.

However the qualitative methods used to verify, test and question the statistical results depend on interviews with experts. They are entitled to personnel rights and rights of the organization they represent. According to Patton (2002) questioning experts requires an interactive style of communication. This restricts the possibility of experts to maintain their anonymity by answering prepared questions. The interview of experts requires a personnel contact between them and the researcher either vis--vis or by phone. Such an exposure endangers their confidentiality rights and those of the organization they represent. Ibert et al. (2001) specify that the attitude or behaviour of experts or their organization may be revealed and that can have consequences for the organization. The confidentiality rights are endangered of investment banks, funds and rating agencies that all experts that have been taken part in the interviews belonged. Investment banks are providing transaction advice to different parties. With statements

in the interviews they might lose their neutrality that is required by their customers. The
124

same applies to rating agencies that sell their advice about the financial situation and outlook of organizations. The loss of neutrality would threaten their business model. Internal regulations of funds limit each fund manager in his or her external

communication. Third parties should not be enabled to conclude about investment or divestment decisions taken by the funds by analysing external communication. To consider confidentiality aspects in this research study, the researcher has taken following steps in preparation of structured interviews with experts. Based on the recommendation by Patton (2001) the researcher explained the purpose of the research study to each expert in a letter that has been sent to them at least two days ahead of the interview date. Another part of this letter which is attached as appendix H to this research study includes a confidentiality clause. This clause enabled each expert to opt for anonymity. As part of the introduction at the beginning of each structured interview it has been mentioned by the researcher that questions can be skipped by the experts. This right to refuse answers on certain questions has been used by several experts in the process of the interviews. Based on the results of the literature review in chapter 3a model of the relationship between risk disclosing insurance groups and the capital market has been developed. Within this chapter aspects of this model such as the analyzed variables, the methods used to measure these variables, the qualitative and quantitative research instruments as well as the unit of analysis have been set and explained. In performing this research no ethical problems have risen and the confidentiality of experts that have voluntarily taken part in this research study has been preserved. In the next chapter the model-relationship is tested. According to Royer and Zarlowski (2001, p. 113) the testing requires that 'hypotheses have to be formulated in such a way as to be (... ) falsifiable'. In a second step the hypotheses are tested with quantitative statistical methods. Those results have been questioned or verified by experts in the field of the European insurance industry. The result of these structured interviews is the last part of the following chapter.

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Chapter

6. Results and Discussion

The relationship between the variables capital market reaction as the dependent variable, risk disclosure performance and change in equity ratio as the independent variables and ownership structure as the control variable have been statistically analyzed. The results of applying the quantitative research tools are presented and discussed in chapter 6.1. In order to verify statistical results, the theory implied and the research methodology of this thesis, professional users of financial statements have been interviewed and the implications of the research results discussed with them. The

results of the interviews are presented in chapter 6.1. The main findings are summarized in chapter 7.1.

6.1. Statistical Results and Discussion

6.1.1. Results of the test of normality
The results on the tests of normality for the cumulative abnormal return of the dependent variable, the risk disclosure performance of the two independent variables and the change in modified equity ratio are presented in the following. The distribution of the control variable's institutional ownership is not measured because it has the same value for nearly all listed European insurance groups. The variable risk disclosure performance has been measured based on two checklists that refer to risk information that have been published in 2007 and 2008. Thus the results of two disclosure performances are presented.

The distribution of the cumulative abnormal return of the dependent variable that
represents the capital market reaction can be considered normal. The trimmed mean of -10.08 is close to the mean -10.02 and the scores are clustered to the right with a negative Skewness of -0.061 an flat with a Kurtosis of -1.349. The KolmogorovSmirnov test with 0.134 and the Shapiro-Wilk test of 0.924 are higher than the significance level of 0.05 according to Field (2009). These results lead to the assumption of a normal distribution. This also supports the assumption of McWilliams and McWilliams (2000) that the data of event studies even on small samples can be assumed to be normally distributed.

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The distribution of the risk disclosure performance in 2007 of the independent variable can be considered normal. The trimmed mean of 53.518 is close to the mean 53.671 and the scores are clustered to the left with a positive Skewness of 0.202 an slightly peaked with a Kurtosis of 0.075. The Kolmogorov-Smirnov test with 0.147 and the
Shapiro-Wilk test of 0.953 are higher than the significance level of 0.05 according to Field (2009). These results lead to the assumption of a normal distribution. The distribution of the risk disclosure performance in 2008 of the independent variable

can be considered normal. The trimmed mean of 53.956 is close to the mean 53.677
and the scores are clustered to the right with a negative Skewness of -0.530 and relatively flat with a Kurtosis of -0.765. The Kolmogorov-Smirnov test with 0.177 and the Shapiro-Wilk test of 0.945 are higher than the significance level of 0.05 according to Field (2009). These results lead to the assumption of a normal distribution. The distribution of the independent variables' change in modified equity ratio can be considered normal. The Kolmogorov-Smirnov test with 0.166 and the Shapiro-Wilk test of 0.967 are higher than the significance level of 0.05 according to Field (2009). These results lead to the assumption of a normal distribution.

For all dependent and independent variables it can be assumed that their distribution is
normal. Therefore parametric tests have been applied to analyse the relationship between the variables with statistical methods. Table 2: Test of Normality
Mean Dependent variable: Cumulative abnormal return Independent variables:
Risk disclosure 2007 Risk disclosure

Trimmed mean

Skewness

Kurtosis

KolmogorovSmirnov

Shapiro Wilk

-10.02

-10.08

-0.061

-0.075

0.147

0.953

53.671

53.518

0.202

0.075

0.147

0.953

performance

53.677

53.956

-0.530

-0.765

0.177

0.954

performance 2008 Change in modifiedequity ratio

0.324

0.388

-0.244

0.200

0.166

0.967

There is no test of normality for the control variable 'institutional ownership' because all listed European insurancegroups have significant institutionalownership

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6.1.2. Correlations between the variables

The form chosen to present the correlations between variables is summarized in
accordance with Pallant (2007, p. 133).

The relationship between risk disclosure performance in 2007 and the capital market reaction measured by the cumulative abnormal returns in a crisis situation has been investigated using a Pearson product-moment correlation coefficient. Preliminary

analyses were performed to ensure no violation of the assumption of the normality and linearity. There was a medium positive correlation of r=0.333 between the risk disclosure in 2007 and the cumulative abnormal return and a weaker positive correlation of r=0.196 between risk disclosure in 2008 and the cumulative abnormal return with n=13. Both correlation coefficients are between the lower and upper boundary of a confidence interval that have been calculated using z-scores for each statistical distribution. The hypothesis H, that there is no relationship between risk disclosure quality of listed European insurance groups and their fair value in a crisis situation can be rejected. High risk disclosure quality of insurance groups in their 2007 and 2008 financial statements leads to lower negative cumulated abnormal returns. The capital market appreciates the disclosure of risk information and does not sell their shares in such companies as fast in a crisis situation. The statistical relationship is stronger with the information disclosed in the 2007 financial statements before the crisis peaked than with the 2008 data because this was the information considered by the capital market during the event period. The result supports the empirical study by Baek et al. (2002) so that their results can be transferred to the financial crisis situation of 2007 and 2008. With a coefficient of determination R2 of 0.111 for 2007 and R2 of 0.038 for 2008 the shared variances between the variables are limited.

The relationship between risk disclosure performance in 2007 and 2008 of listed European insurance groups and the degree they are affected by the financial crisis situation using the change in their modified equity ratio as a proxy has been investigated using a Pearson product-moment correlation coefficient. Preliminary

analyses were performed to ensure no violation of the assumption of the normality and linearity. There was a medium negative correlation of r=-0.340 between the risk disclosure 2007 and the change in modified equity ratio and a stronger negative correlation of r=0.354 between risk disclosure 2008 and the cumulative abnormal 128

return with n=13. Both correlation coefficients are between the lower and upper boundary of the confidence interval that have been calculated using z-scores for each statistical distribution. The hypothesis H2 that there is no relationship between risk disclosure quality of listed European insurance groups and the change in modified equity ratio can be falsified. High risk of derivative financial instruments that are based on mortgage portfolios are associated with lower equity ratio, because the instruments lost a significant portion of their value during the crisis. This loss is recognized by reducing the equity of insurance groups. The smaller the equity and thus the higher the materialised risk from these derivative financial instruments the better the risk disclosure performance. Therefore insurance groups under financial stress try to improve their disclosure about their financial risks more strongly in their 2008 financial statements after they experienced the shock and awe of the event as a peak of the effect from the financial crisis on the insurance business. With a coefficient of determination of a R2 of 0.116 for 2007 and a R2 of 0.125 for 2008 the shared variances between the variables are limited.

The relationship between risk disclosure performance of listed European insurance groups and their degree of institutional ownership is not correlated because the ownership structure of all analyzed insurance groups is measured with the number one as all groups are owned by more than 10% institutional owners. It was not possible to find out the ownership structure of Standard Life as one of the listed European insurance group. Assumed that this insurance group is not owned by institutional investors and provided with the value of zero in this statistical analysis a correlation coefficient r =-0.062 is close to zero. Therefore the H3 hypothesis cannot be falsified. Institutional investors as a significant proportion of shareholders have no statistical influence on the risk disclosure quality of companies. The reason for this is that 12 of the 13 analyzed international insurance groups have significant institutional investors.

The results on the H4 hypothesis are not based on a correlation analysis. The results sums up the cumulative abnormal returns of all thirteen listed European insurance groups analyzed. The H4 hypothesis that the share prices of listed European insurance groups do not decline during the analyzed event of the financial crisis cannot be supported.The average standardized cumulative abnormal return that summarizes the share price development of all listed European insurance groups in the unit of analysis
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is -10.1. This means that the share value of each insurance group deviated negatively from the industry index during the period of the event window by 10,1%. It can be stated that the near insolvency of AIG indeed troubled the shareholders of listed European insurance groups, let more owners sell their shares than shares bought and therefore leading to lower share prices and a decreased fair value of the insurance groups.

The relationship between the capital market reaction and the change in modified equity ratio of listed European insurance groups at a crisis situation has been investigated using a Pearson product-moment correlation coefficient. Preliminary analyses were performed to ensure no violation of the assumption of the normality and linearity. There was a medium high positive correlation of r=0.444 with n=13 between the capital market reaction represented by the cumulative abnormal returns of each listed European insurance group and their change in modified equity ratio. The correlation coefficient is between the lower and upper boundaries of the confidence interval that has been calculated using z-scores for each statistical distribution. The H5 hypothesis can be falsified. High risks of derivative financial instruments that are based on mortgage portfolios are associated with lower equity ratio, because the instruments lost a significant proportion of their value during the crisis. This loss is recognized by reducing the equity of insurance groups. The smaller the equity and thus the higher the materialised risk from these derivative financial instruments, the higher the negative deviation of the share price of the listed European insurance groups from the industry benchmark. Therefore the lower the risk and the higher the equity ratio the lower the negative deviation of the share price of the insurance company from the industry benchmark. The capital market has worked efficiently by reducing the share price of international insurance groups in September 2008 that had high financial risk. This risk arose from financial instruments based on mortgage portfolios. The risk from these financial instruments materialized four months later when the financial statements of 2008 of the insurance companies disclosed the decrease in equity caused by the drop in fair value of these instruments. With a coefficient of determination R2 of 0.197 the shared variance between the variables is limited.

The relationship between the risk disclosure performance in 2007 and 2008 of listed

European insurance groups has been investigated using a Pearson product-moment

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correlation coefficient. Preliminary analyses were performed to ensure no violation of the assumption of the normality and linearity. There was a high positive correlation of
r=0.606 with n=13 between the risk disclosure performance of both years. The correlation coefficient is between the lower and upper boundary of the confidence interval that have been calculated using z-scores for each statistical distribution. The H6 hypothesis can be falsified. Those listed European insurance groups with a high disclosure performance in their consolidated financial statements 2007 also have a high risk disclosure performance a year later in 2008. Those insurance groups with a low disclosure performance in 2007 showed a low disclosure performance based on their 2008 consolidated financial statements. The impression that the risk disclosure

performance of listed European insurance groups is relatively stable shows that their willingness to disclose risk information is not situational and is not significantly
influenced by the financial crisis situation.

Table 3: Univariateanalysis measured by Pearson correlation

Cumulative abnormal return Risk disclosure performance2007
Risk disclosure

r=0.333
r=0.196

Change in modified equity ratio r--0.340

r--0.354

Risk disclosure performance2007

Risk disclosure performance2008 r=0.606

r=0.606

erformance2008 Cumulative abnormal return

-----

----

r-0.444

r=0.333

r-0.196

6.1.3. Multivariate regression

The relationship between the capital market reaction as dependent variable and the risk disclosure performances 2007 and 2008 as well as the change in modified equity of listed European insurance groups as independent variables of this research study have been investigated using a Pearson product-moment correlation coefficient although the sample of listed European insurance groups is statistically too small to apply such regression analysis according to Pallant (2007). Therefore no confidence interval has been calculated. The statistical results are used as an indication for the

qualitative method applied in this research study. The results of the H7hypothesis are used to cluster listed European insurance groups according to their relevance for the capital market. Those that disclose little and bear significant risk positions are frightening to the capital market. Those that disclose a lot and bear little risk are the stars of the capital market. These results are documented in appendices F and G. The
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response of the capital market is influenced by a medium correlation of r=0.282 with the change in modified equity ratio and to a high correlation of r=0.584 with the risk
disclosure performance of 2007. The response of the capital market is influenced to a slightly lower degree with a medium correlation of r=0.262 with the change in equity ratio and to a lower degree with a medium correlation of r=0.292 with the risk disclosure performance of 2008. The H7 hypothesis can be falsified although this result is not based on statistically valid confidence intervals and the necessary sample size. The better risk disclosure performance and a lower risk from derivate financial instruments that are based on mortgage portfolios resulting in a higher equity ratio, the less insurance groups suffer from a negative effect on their share price in a crisis situation. The capital market does not sell the shares of those companies with small financial risk and a good risk disclosure performance in a crisis situation. The capital market relies more on the risk disclosure performance before the crisis event with a correlation coefficient of r=0.584. The statistical significance of this multivariable correlation is higher than the Ho hypothesis because the R2 is high with 0.461 and even the R2coRected of 0.354 is higher than the R2 of the Ho with 0.111 according to Backhaus et al. (2008). So it is worth using the multiariante regression analysis with the change in modified equity ratio and the risk disclosure performance of 2007 as independent variables in this research study.

After the quantitative results are presented, qualitative methods are used in the combined research approach to improve the precision of the statistical measurement according to Baumard and Ibert (2001).

6.2. Qualitative results and discussion

Interviews with users of consolidated financial statements that are experts in the European insurance industry were performed and documented in appendix I. By using clusters those insurance groups were selected that should be analyzed by experts from rating agencies. The sample of thirteen international insurance groups was subdivided into four clusters using their disclosure performance of 2007 and the change in equity ratio. Two of the clusters each containing three insurance groups with bad disclosure performance and low equity ratios as well as a cluster of three insurance groups with high disclosure performance and high equity ratio in 2007 and 2008 were further analyzed as documented in the appendices F and G. 132

The three insurance groups Allianz, ING and Standard Life are the ones with the lowest disclosure performance and the highest risk from financial instruments in the crisis situation measured by the reduction of equity used as a proxy. Can they be considered the most dangerous investments in the industry? The three insurance groups MunichRe, AXA and Zurich are the ones with the highest disclosure performance and the lowest risk from financial instruments in the crisis Can they be by their used as a proxy. ratio equity measured reduced situation considered the safest investments in the industry?

The interviews have been performed with five experts in the fields of banking, investment banking, fund management and rating agencies that cover the full financial in information statements. The group of professional users of risk spectrum daily work of all experts is focused on the European insurance industry. The purpose of the interviews was to receive comments about the implied theory, the research methodology, results of the quantitative analysis and to ask experts about future implicationsof the research performed.

6.2.1. Experts on the implied theory

Answers on these questions differed among experts. The first question about the ability of the capital market to include all information available at a given point of time in the share price was answered by four experts. The question is based on the be (1954) Girshik that by Blackwell can considered the mentioned and assumption cornerstone of empirical research on the capital market. Although the experts agreed on the assumption they voiced criticism that this is an academic assumption. They pointed out that the business model of listed European insurance groups is far too be the information is to that and can processed by market all available not complex so the capital market. Anonymous (2010) asserts that insurance shares suffered unduly during the crisis. Seel (2011) provides the information that the special regulations in each European market and entity-specific assumptions on disclosed information make it almost impossible - especially in the life insurance business - to gather the listed European business to information among ratios necessary compare new insurance companies. The information was based on the attempt to create an internal 133

report on European life companies. This questions the capacity of the capital market to receive understandableand sufficient information in order to make financial decisions.
The second question about the assumptions of a relationship between corporate disclosure and the capital market can be adapted to the financial crisis. As mentioned by Lenz and Diehm (2010) it would be possible to predict the effect of the financial crisis on the listed insurance groups in September 2008 based on risk information that was disclosed in the group financial statements 2007. The question was answered by four experts. Anonymous (2011 a), Anonymous (2011 b) and Anonymous (2010) are supportive that the effect of the crisis on European listed insurance groups can be predicted. However Anonymous (2011 a) specifies that information needed to make such predictions exceeds that which is disclosed in the group financial statements or disclosed in other ways. Seel (2011) opposes the opinion of the other experts by stating that the insurance industry is far too complex in order to be able to make precise predictions about the financial results of European insurance groups.

The third question about the relationship between risk disclosure performance and how the capital market recognizes this activity has been thoroughly researched by Welker (1995), Sengupta (1998), Healy et al. (1999), Botosan and Plumlee (2002) as well as Lambert et al. (2007). They empirically supported better financial possibilities on the capital market for listed companies that exceed requirements and disclose additional information. The psychological aspect of this relationship gains importance during crisis situations. Williams and Dolnik (2001) found out that such disclosure behaviour of companies increases the credibility of these companies in the eye of the investor. These investors are endangered of panicking during crisis situation in a phenomenon called "herding" by Hirshleifer and Teoh (2003). Only the trust of investors in the credibility of companies can reduce such herding effects (Vater et al., 2008). All experts agreed that timely and extensive disclosure of companies build up trust by investors. Seel (2011) points out that it is the quality and not the amount of information that is significant for investors. He defines this quality as being able to compare disclosed information with other benchmarking European insurance groups.

Summarizing the experts verified existing theories about the relationship between disclosing European insurance groups and the capital market, they support the
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theoretical ability of the capital market to consider every information available at any given point of time in its decision making process. However, some experts constrict this opinion when they stress the complexity of the insurance business model, the country-specific regulations and the entity-specific assumptions. These constraining factors limit the efficiency of the capital market in regard to the share evaluation of listed European insurance groups. The experts question the interdependency between disclosure performance of companies and their share evaluation by stating that the informationdisclosed must be comparable in order to be useful for investors.

6.2.2. Experts on the research methodology

The research methodology has been determined by the kind of industry and the companies that were analyzed, by the event study method and its timing, by the proxies to measure the effect of the crisis and the risk disclosure performance by the

companies.
The focus of this research is on the insurance industry. Only insurance companies were analyzed because they did not initiate the financial crisis but predominantly experienced side effects of the crisis like illiquid markets for financial instruments and lower market interest rates on corporate and governmental bonds. These side effects mattered to them because insurance companies are major pools of financial assets. In insurance European listed industry it is that to this groups research essential order were affected in a similar way in order to compare their risk disclosure behaviour and the reaction of the capital market on their disclosure. All five experts answered this question. Their shared opinion was that the insurance industry was hit hard by the financial crisis. The industry was affected indirectly by the crisis according to Noack (2010) unlike banks which were hit harder and directly by selling credit default swaps that originated the crisis (Anonymous, 2010). The experts explain this difference between banks and insurance companies by pointing out that insurance companies have a longer liquidity position that did not force them to sell as many assets as banks during a time when the market was down (Anonymous, 2011 b). The experts did not address the problem in this question that several of the researched listed European insurance groups owned banking subsidiaries. This leads to organizations with a mixed structure of banks and insurance segments. It disturbs the idea of a homogenous group of analysis that was analyzed in this research study. 135

In addition to the focus on the insurance industry only listed European insurance groups that record their books according to International Financial Reporting Standards (IFRS) were included in this research study. The purpose of these restrictions was to build a comparable and homogeneous group of companies to be analyzed. The request about the homogeneity of the insurance companies was part of the question: Which European insurance group was affected most negatively by the crisis? Four experts answered the question. They agreed upon two main differences in the structure of European insurance groups. First, the exposure to the US-life insurance market forced these groups to meet financial guaranties of policies which they sold that could not be achieved with the actual return of their investments which lead to significant losses during the researched period of 2007 to 2008 according to Noack (2010) and Anonymous (2011a). Second, by being involved in banking activities European insurance groups were affected directly by the financial crisis and not only indirectly like those groups with pure insurance Anonymous business (Anonymous, 2010). as two (2010) and Noack (2010) specify that AIG and SwissRe

international insurance groups that were involved in initiating the financial crisis by from the sample of this default These two excluded groups were credit swaps. selling thesis because they record their books according to US-Generally Accepted Accounting Standards (US-GAAP) that differ in their requirements to disclose risk information from the other internationally applied accounting standards IFRS. This leads to the conclusion that the thirteen European insurance groups that were analyzed in this research are only partially homogenous. Groups with banking activities like Allianz and ING could be considered separately or given special attention in the analysis of their statistical results. However, the thirteen groups are homogenous in the accounting standards they apply and in the way that they are predominantly indirectly affected by the financial crisis and did not initiate it by selling credit default swaps. The event study method was used to analyse the reaction of the capital market towards risk disclosure at a certain point of time. The method is uniformly accepted in the academic world to analyse the relationship between events of listed companies and the capital market reaction (McWilliams and McWilliams, 2000). Only one of the five experts answered this question. Anonymous (2010) did not respond to the

application of the event study method but pointed out and provided examples, that the 136

financial crisis produced some extraordinary share price reactions. The event study method contrasts according to Kothari (2001) average market reaction in the past with extraordinary share price reactions around the chosen event date. Therefore this scientific method is applicable to the analysis of this financial crisis. What Anonymous (2010) might suggest is that the analysis should not stop by stating that there are extraordinary share price reactions but why these reactions occurred. At least this is the way he explains the share price of MetLife and AEGON in the examples he provides. Although none of the experts explicitly recommends the event study method,

one of them hints in the direction that research tools should be used to analyse extraordinary share price reactions. As the event study method is accepted in the scientific community to be such a tool (McWilliams and McWilliams, 2000) it is assumed that this part of the research methodologyis supported by the experts.
The timing of the event study was set in such a way as to minimize other confounding factors and to purify the relationship between risk disclosure and capital market reaction. Based on the assumption of Vater et al. (2008) that during the peak of a financial crisis investors fear most and need trust to hold on to their investments the event study was set on September 14th -, 2008 when AIG faced near insolvency and had to be rescued by governmental aid. This event was chosen because it complies with the requirement set by Kothari (2001) that it is not clustered in calendar time and with the requirement by MacKinlay (1997) of being preponderantly unanticipated. All experts answered the question regarding the timing of the event study method and alternative timing. Four experts agree that the near insolvency of AIG has been an unanticipated one-time disaster. This incident left investors shocked and fearful according to Anonymous (2010) and Anonymous (2011a). Noack (2010) and

Anonymous (2010) suggest other dates like the insolvency of Lehman, an investment bank, Hypo-Real-Estate, a German Pfandbrief-bank or the recapitalization of ING. However these suggested events lack the same magnitude or are locally restricted to certain countries. As a result of the expert interviews the chosen event date has been confirmed. Alternative dates can be considered in future research studies.

Two proxies were used in this research project. One proxy is the change in modified equity ratio of listed European insurance groups. This quantitative number should stand for the effect the financial crisis had on the insurance groups. The underlying 137

assumption is that the financial crisis lowered the fair value of interest bearing assets and equity based assets that insurance companies as pools of investments are holding. The difficulty is that insurance groups can categorize their assets into different groups according to [AS 39. Depending on the chosen category lower market values are accounted for in different ways either against loss or against equity. As a result the effect on the annual results varies but on the equity of companies remains the same. Therefore experts were asked about modified equity ratio being a proxy to represent the effect each European insurance group suffered from the financial crisis. All five experts answered this question. The experts explicitly agreed that the change in the modified equity ratios can be used as a proxy for the effects of the financial crisis on insurance groups. Anonymous (2010) specified that banking losses from insurance groups with banking segments lowered the equity ratio as well. As a result, direct and indirect effects of the financial crisis on European insurance groups are enfolded in the proxy that is used in this research study. Seel (2011) and Anonymous (2011a) suggested more specific proxies to use. Seel (2011) suggested to use several results of European insurance groups in one year such as results from regulatory accounting required by insurance companies by local regulators, results from rating agencies concerning these groups and results from the embedded value that life insurance companies voluntarily disclose. The problem with such an expanded proxy is that not all results are available and comparable. The accounting requirements of local regulators may differ and the business model of the analyzed European insurance groups vary so that the embedded value that measures only the market value of life insurance segments may not be available for all insurance groups or overrate the significance for one group. Another suggestion by Anonymous (2011 a) was to extend the period of time in which the proxy is measured. He suggests that the write-downs because of lower market values of investments and the write ups when the market value of these investments rises again should be measured. The advantage of this method would be that the impairment policy of each insurance group could be analyzed. Does the insurance group write investments down during the crisis because of lower market values or does it wait until the prices come back to the original level? The disadvantage of this method would be the longer period of time to measure. It is not clear at what point of time the market values of all investments get to the same level as before the crisis. Another objection of the experts is that depreciation is not by

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choice and that all insurance groups have to comply with the impairment rules of IAS 32 and IAS 39 so that a level playing field approach exists.
The other proxy used in the research methodology is that the disclosure performance is appreciated by investors. The disclosure requirements of IFRS 7 on risk information set a standard that all listed European insurance groups are obliged to keep to. However certain information can either be provided in a quantitative or a qualitative manner. Based on empirical research by AICPA (1994) and EFRAG (2009) investors prefer quantitative to qualitative information and entity-specific rather than general information. These preferences were recognized in the scoring method used to measure the disclosed risk information of the listed European insurance groups in their annual group financial statements of 2007 and 2008. This was not questioned by the researcher. However Anonymous (2010) verified the investors' preference for

quantitative and entity-specific information in their decision-making process so that the proxy concurs with the infrequent research studies performed on this topic.

To summarize the statements of the analysts regarding the research methodology, they agreed that the analyzed industry and the selected companies are a predominantly homogenous group to be analyzed. Although this group includes insurance groups with banking segments it was stated by the experts that all have been indirectly affected by the financial crisis. A direct affect could be ruled out because none of the international insurance groups that sold credit default swaps is included in the group of analysis. The experts supported the application of the event study method without explicitly mentioning it and confirmed the set event date as the peak of the financial crisis from the view of investors in all listed European insurance groups. The two proxies in this research study used to measure the effect of the crisis on companies and the effect of disclosed information on investors were confirmed by all analysts. The chosen quantitative research methodology that is based on a scholarly review of the existing theories and empirical studies were confirmed by users of group financial statements and experts in the field of the European insurance industry.

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6.2.3. Experts on the results of the statistical results

In the quantitative part of this research study the statistical correlation of the three research variables was analyzed. This revealed that better risk disclosure is generally appreciated by the capital market. In addition the analysis showed that the disclosure quality improved during the crisis. In two questions analysts were asked about insurance companies that suffered from the financial crisis and did not reveal their risk position or were not affected but revealed their risk. In order to generalize the statements about this phenomenon the listed European insurance groups were clustered as documented in the clustering in appendices F and G. In the last question an unexplainable statistical result was presented to the experts that the capital market detected those insurance companies that suffered most from the financial crisis way before they disclosed their risk position in their annual financial statements.

In contrast to empirical research by Lehn et al. (2007) that good corporate governance increases the share value of companies this could not be statistically supported in this research study assuming that risk disclosure is regarded as a means of corporate governance. The capitalization of all analyzed listed European insurance groups dropped by 10% during the research period. In order to analyse a correlation between positive or negative feelings of experts and the risk disclosure performance of insurance groups these experts were asked whether or not they were able to get a clear picture of insurance groups in the crisis. Three experts answered the question. Anonymous (2011 a) stated that information in the group financial statements have been insufficient and non-specific. But Noack (2010) generalizes that the timeliness and extent of risk information is directly connected to his judgement about the value of an insurance company. By doing so he supports the correlation between the risk disclosure performance of the two researched variables and capital market reaction. He specifies that the necessary information about the insurance companies' risk position portfolio-based financial instruments was not available in 2007 and 2008 but has improved since. The impression of improvement in the disclosure about these crisis affected financial investments was shared by all experts.

The analysts were provided with information about the clustering of researched listed
European insurance groups as documented in appendices F and G. They knew that Allianz, ING and Standard Life lost equity as a result of the crisis and revealed less risk 140

information than their peers. Analysts knew as well that MunichRe lost less equity and scored higher in its risk disclosure performance than other insurance groups. The experts were asked to comment on these statistical findings. Four experts commented on this issue. Seel (2010) and Anonymous (2010) confirmed that Allianz and ING suffered equity losses and that MunichRe remained stable in its equity basis. Anonymous (2011b) explains this by stressing that ING had a strong position in life insurance that suffered during the crisis whereas MunichRe had a stronger position in the property and casualty insurance that did better. The risk disclosure performance of clustered companies was evaluated differently by the experts. This difference

epitomized on Allianz. Noack (2010) puts MunichRe and Allianz on the same level by stating that both pursued an active course in their risk disclosure. However Anonymous (2010) specifies that Allianz made an attempt to be transparent about their risk exposure but could have done more, whereas MunichRe was fully transparent during the financial crisis. He adds that ING disclosed excessive amounts of information but does not confirm that this information was impaired in their use for investors because they could not be compared with other peers. The experts predominantly support the statistical results of the clustered insurance groups about the negative effect of the financial crisis on these groups and their disclosure performance. Doing this they hinted that the risk disclosure measurement that was performed in this research is reasonable and complies with the judgement of the experts that were interviewed.

The experts were asked about the unexplainable phenomenon of the capital market that detects insurance groups with high risk although this risk was not disclosed in their annual financial statements. Four experts answered this question. The experts agreed that the risk information in the annual financial statements of 2008 came too late to
provide investors with the necessary information during this crisis (Anonymous, 2011 b). Noack (2010) explains how the information was available before the disclosure of the financial reports. He states that alarmed by ad-hoc announcements analysts asked the management of all European insurance groups during conference calls and investor days about problems that one group had to announce and asked each management about their position on the relevant problem. This created transparency in the financial market and share prices reacted correspondingly according to Noack (2010). Anonymous (2011b), Seel (2011) and Anonymous 141 (2010) confirm this

procedure. Anonymous (2011 b) adds that investors rely more on these sources during crisis situations. The common opinion of the experts is that during this financial crisis the annual financial statements were not the prime source of information for the capital market. To cover the time lack until new information is released investors asked the management about current issues and problems of other peers and demanded a reply. Aside from this question Anonymous (2011 a) states that when analysts do not get a response from the management on specific questions the analysts expect the worst and act accordingly. This puts listed European insurance groups into the situation that according to Anonymous (2011 b) they have to disclose the right information in the right way so that professional investors understand it. Therefore the phenomenon could be explained by specific risk information that was disclosed in time and ahead of the annual financial statements to investors during conference calls and investor days.

Summarizing the response of the experts on the results of the statistical research it can be stated that the statistical relationship between risk disclosure quality and the opinion of the capital market is supported by the experts. They believe that good disclosure improves their view and opinion about listed insurance groups. Although the researched European insurance groups did not disclose much information about their equity destroying structured financial instruments of this financial crisis like Asset Backed Securities, Commercial Mortgage Backed Securities, Residential Mortgage Backed Securities and Collateralized Debt Obligations that are relevant according to Scharpf and Schaber (2009), their disclosure performance improved since the crisis according to the experts. The experts confirmed the disclosure quality of the clustered insurance groups measured in this research study and explained that during a crisis critical information is provided to institutional investors in informal ways such as on investor days or conference calls. This puts private investors at a disadvantage. Not necessarily concerning the access to this information, because all information at such events is placed on the internet according to Noack (2010) but because of the complexity of the insurance business model that needs experience that only professional investors can rely on (Seel, 2010).

6.2.4. Experts on the future implication of research results

The future implication of the research was the last question to the experts. They confirmed that the disclosure of fair values of insurance contracts is considered in the 142

industry to be as sensitive as the disclosure of risk information about structured financial instruments during the financial crisis. Therefore, the disclosure of risk information according to IFRS 7 that was the subject of this research study can be international by disclosure accounting required seen as a process of enhanced standards. This process continues with the new IFRS 4 standard on the measurement of insurance contracts and the exposure draft on IFRS 9 future standards about the measurement of financial instruments. Their measurement is either based on real market derived values, on market orientated values or on entity-specific calculated values. These values will be required not just for the debit but for the credit side of the balance sheet as well. This step brings disclosure of chances, risks and their quantification in fair values to the next level. The experts were asked about this new level of transparency for listed European insurance groups. All experts answered this question. Two experts welcome the higher transparency that a market oriented 2011a). It be (Anonymous, bring balance total the would would sheet measurement of a consistent approach that would be beneficial for investors (Anonymous, 2011 b). Four experts stressed technical difficulties of such an approach that surfaced during the financial crisis. Anonymous (2011 a) mentioned that market values did not exist in the last crisis situation, although pressure mounted on accountants to mark them to market value. Noack (2010) mentioned that the IASB allowed a new categorization of investments away from the fair value category at the peak of the crisis for companies investments. Seel (2010) in fair drops the to and of such values wanted conceal which Anonymous (2010) mentioned the adaption of estimations that must be used in order to calculate fair values of investments that are not traded on a market like insurance liabilities. But aside from the technical problems during the crisis two experts question the willingness of listed European insurance groups to increase the transparency of their business to investors. Noack (2010) stresses that insurance groups would only be willing to disclose bad news when these are of no relevance to the assessment of their (2011a) by Anonymous This is who believes opinion supported performance. overall that bad news are only disclosed when the insurance group could afford it. This assessment of experts brings back the basic assumption of this research study whether or not managers of listed European insurance groups are willing to disclose the negative risk positions of their companies in a timely and extensive way under the pressure of a financial crisis.

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Chapter

7. Conclusions and Implications

This last chapter summarizes the main findings of the thesis (chapter 7.1. ) and demonstrates their implications (chapter 7.2. ). After presenting the limitations of the used research methods and the sample size in chapter 7.3. the researcher lists suggestions to investors, accounting standard setters and regulators of the insurance industry that derive from the findings of this research work (chapter 7.4. ).

7.1. Main findings

The research was performed on the European insurance industry that was affected by the financial crisis especially by the sharp drop in the fair values of investments it held. The sample selected to analyse its risk disclosure performance and the response towards it by the capital market is homogenous regarding its common implementation of international financial reporting standards by all insurance groups but differs about their degree of banking activities and their geographic exposure of the thirteen listed

European insurance groups analyzed.

The main findings are categorized in how the insurance groups have disclosed their risk positions during the crisis situation and how the capital market reacted towards this

risk disclosure.
Experts confirmed that it is possible to predict the future value of listed European insurance groups based on the risk information that they disclosed in their consolidated annual financial statements. They supported the theory that insurance groups can build up trust that investors have in them during crisis situations by extensive risk disclosure. By doing so the insurance groups hope that investors do not sell the shares during crisis situations despite the uncertainty that prevails during that period of time, That they do sell is proven by the 10% drop in the market capitalization of the European insurance industry sample that was analyzed in this recent crisis situation using the event study method. The degree to which insurance groups disclose their risk positions was analyzed using quantitative methods. By falsifying the H6 hypothesis the researcher found out that the risk disclosure performance 145 of the analyzed

insurance groups remained relatively stable over the researched period of 2007 to

2008. However, individual insurance groups that were threatened to be exposed improved their risk disclosure performance in their 2008 consolidated financial

statements. This disclosure trait of managements can be statistically supported with the falsification of the H2 hypothesis. In contrast to former empirical research no correlation between risk disclosure performance and the ownership structure of listed European insurance groups could be found. The H3 hypothesis could not be falsified because nearly all analyzed insurance groups have the same ownership structure with a significant share of institutional investors. The extraordinary share price reaction during the recent financial crisis was a result of the capital market towards the companies' risk disclosure performance because experts stated that in the interviews. Statistical evidence exists with the falsification of the H6 hypothesis market appreciates better risk disclosure did insurance Investors not sell off their shares in listed groups. performance of that the capital European insurance groups with high risk disclosure performance easily during the recent crisis situation. However, according to experts the capital market considers all information available in order to take financial decisions. This market behaviour can be tracked down statistically by falsifying hypothesis H5 and by expert opinion. The share prices of those insurance groups that were exposed to fair value drops of mortgagebased portfolio financial instruments and banking activities suffered most at the peak of the financial crisis although those insurance groups had not disclosed their risk positions in their consolidated financial statements. The efficiency of the capital market in valuating the insurance groups was made possible by direct communication between professional investors and managers when relevant, company-specific and timely risk information was disclosed during investor days, conference calls and similar occasions. Experts agreed that the disclosure of a risk position of an insurance group is equally sensitive to the disclosure of their assets' and liabilities' fair values. Therefore the research results about the behaviour of the insurance groups as well as the reaction of the capital market can be applied to the disclosure of other sensitive information as well as to other situations that are not as extreme as the recent financial crisis

situation.

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7.2. Implications of the findings

It is unclear whether or not the research results analyzed for the insurance industry can be applied to other industries. Although the insurance industry can be regarded as a secretive one that hesitates to disclose sensitive information it would be wrong to conclude that other industries are more willing to disclose sensitive information. Experts point out that the business model of the insurance industry is unique and difficult to understand for investors.

Aside from the attitude of managements towards risk disclosure in normal times, the behaviour of management under pressure changes for those with risk positions in their books and remains constant for those with a better position in their books. Statistical methods indicate that the insurance groups exposed to high financial risk and decreased equity ratios as a consequence improve their risk disclosure performance in their next financial statements. On the other hand the insurance groups without these kinds of risk and better equity ratios maintained their high level of risk disclosure. As a proof the cluster of the best risk disclosing insurance groups with limited exposure to financial risks remained the same in both financial years, whereas the companies within the cluster of least risk disclosing insurance groups which did however face risk, changed. The risk disclosing behaviour of managers can be distinguished in eager managers that hold on to their high level of risk disclosure regardless of a tough environment and those managers that limit their risk disclosure and might reveal more risk information only when pressed by professional investors or the public. This behaviour remains relatively stable over time. The participants in the capital market demand risk disclosure and want risk information that suits their needs during crisis situations as soon as possible and as closely tailored to the individual risk situation of the insurance group as possible. Statistical methods indicate that they get this information during a crisis situation nevertheless because the capital market detected those insurance groups that were affected most

severely even before they disclosed risk information in their financial statements. Experts pointed out that the capital market demands risk information from the management in a crisis and receives it by unregulated ways of communication. This additional source of information puts private investors in a position of disadvantage,

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especially,as experts stress in an industry that is as complex and hard to understand . as the insuranceindustry. industry.
The results of this dissertation can be used in further academic research. According to Verrecchia (1986) research in the field of disclosure should try to link corporate disclosure to its economic consequences on the disclosing company and the capital market. This dissertation has highlighted some behavioural patterns of disclosing companies and the capital market in connection with the handling of 'sensitive information'. With fair value accounting and detailed notes requirements companies are forced to disclose 'sensitive information' that can result in high external cost from their unintended use by competitors. How companies comply with or try to circumvent these disclosure requirements about 'sensitive information' can be subject of futures empirical research studies.

7.3. Limitation of the research

The results of this research study can be generalized based on the restrictions that
only listed groups of the insurance industry have been analyzed. In regard to the willingness of companies to disclose 'sensitive' information the insurance industry can be regarded as a good proxy for companies from other industries because according to Meyer et al. (2004) insurance groups fear that the disclosure of risk can be judged critically by investors and customers as a sign of weakness in their business model. This enables the researcher to identify traits of managements to retain 'sensitive' information that should be considered by regulators and standard setters in their attempt to provide all investors with relevant information. This thesis considered the capital market reaction in only one short period of time.

Experts confirmed that this period had a significant impact on the insurance industry, however the long-term risk disclosure performance of companies and the reaction of the capital market over a longer period of time are not part of this thesis. Statistical results that are based on an analysis of data from a limited sample size can be misleading and should only be generalized when confirmed by another research method.This problem was addressed in this research study by verifying the results via structured interviews with experts. By using two methods to analyse the research
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question the consistency of findings generated by the one method is validated by the other (Patton, 2002). However, future research on risk disclosure with an extended
sample size is recommended.

7.4. Policy orientated suggestions

The starting assumption that additional risk disclosure of listed European insurance groups is appreciated by the capital market during this current financial crisis situation has been statistically supported. This result has implications for the management of listed European insurance groups, for the capital market as well as for regulators and

standard setters.
The risk disclosure efforts of listed European insurance groups stay constant over time and vary within a crisis situation. Expert interviews indicated that the same insurance groups are holding up a high level of risk disclosure quality. This has been confirmed by statistical methods that find a significant correlation between the risk disclosure performance in 2007 and 2008 of each analyzed insurance group. Therefore management that stresses the importance of investor relations and extensive risk disclosure in financial statements have been pursuing this policy for a longer period of time. Such management behaviour supports theories that only long-term and constant disclosure of risk-relevant information builds up investors' trust in the company. On the other hand, managements that limit risk disclosure or at least the quality of disclosed risk information as indicated in expert interviews do this as a pattern and over a longer period of time as well. Regulators might want to empower private investors so that they receive explanations from the management about their risk position and not merely the data that have been communicated to professional or institutional investors and posted on the internet which are understood by professional investors without further explanation but not by private investors. The need for timely risk information that is specific to the crisis situation has proven that risk disclosure in annual group financial statements is

insufficient. The lack of qualitative risk disclosure as a separate part of the notes in quarterlyfinancial statementsdoes not close this risk information gap.

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Standard setters reacted at the peak of the financial crisis by modifying their accounting standards. This reaction has been the first of such interferences and can only be explained by the magnitude of this global financial crisis and the mounting political pressure on standard setters. However it is unlikely that standard setters will interfere in smaller crisis situations. It is also unlikely that the standard setters will demand stricter disclosure and more risk information because they modified accounting standards in this crisis situation by relaxing them. Therefore risk disclosure requirements will most probably not be adapted to the increased risk information needs of investors during a crisis. The standard setters rely on the willingness of companies to disclose more risk information than set by their accounting standards and to disclose the individualized effects on insurance groups that can hardly be prescribed in their form by accounting requirements. How might these results affect the ongoing discussion of full fair value accounting? Fair values are considered one line risk indicators because all assets and obligations are rated at market value and sum up the value of the company in a single market-based number. At least in theory this sensitive information is based on the objectivity of the financial market. Due to the lack of a functioning market for insurance obligations the fair values of them must be calculated by the companies themselves using present value methods. However, these methods require assumptions that must be set by the information be that This leaves full fair the can risk concept as a value management. easily influenced by management - an analogy to the risk information about mortgage portfolio-based financial instruments analyzed in this research study.

As stated in the expert interviews investors would prefer full fair value as a one line risk indicator and a coherent system in contrast to the current mixed method concept of
insurance doubt they that fair all groups would although value accounting cost and disclose the same degree of risk information or would use the same assumptions that influence the calculations. There is a high likelihood that preparers of financial been in have this that two the analyzed up groups end as same statements would research study. One group would be highly motivated to disclose all assumptions and methods of their presented fair values. This would be an approach which would build trust in investors by the transparency it provides. Another group might use present full fair values but withhold necessary information about the assumptions that have been 150

used to calculate fair values. This group might improve their disclosure when pressed by regulators, accounting standard setters or crisis situations. However, it is unlikely that such improvements would last because the attitude towards risk disclosure of the management remains stable over time according to quantitative results in this research study. These different management approaches towards risk disclosure cannot be levelled out by very specific accounting requirements or diligent auditors because experts confirm that the insurance industry's business model is much too complex to dictate every calculation assumption that lead to fair market values. The willingness of managers to exceed risk disclosure requirements is a necessity in order to provide investors with the information they need to make their investment decisions. 'Rules alone do not work; what matters is how they are applied' (Anonymous, 2009b, p. 12). So it is up to investors to back the managers of those companies with good risk disclosure performances and penalize those with bad ones. Indicated by statistical results and supported by experts interviewed in this research study, this is what investors did during the crisis. Therefore the implementation of full fair values might succeed despite the complexity of its concept when investors' demand pushes managers into more specific, up-to-date and understandable risk disclosure. Such Watts (2007) be because, Bagnoli to pointed out and as necessary seems pressure even before the financial crisis, the likelihood and content of voluntary disclosure depends on whether good or bad news is communicated. Therefore a constant pressure of the capital market should be maintained to ensure that all relevant information - whether good or bad from the standpoint of the companies - is disclosed.

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REFLECTIVE DIARY

The work on the DBA thesis has been a challenging experience. To find a topic, plan the process, coordinate with supervisors and information providers and to adapt the plan to diverting situations has changed the way I work.
The DBA programme should lead individuals to create new knowledge, to gain a systematic understanding of a body of knowledge and to conceptualise and design a research project that can be tested with applicable research techniques. Because the DBA programme is focused on professionals and set up as a part time programme that allows individuals to pursue their career in correspondence with the academic

programme the thesis topic should be embedded in the business surrounding of the individual. These goals are to be pursued by an individual who is placed in a social environment with duties as well as demands by his or her spouses, children and friends. The first problem is to 'think outside the box'. After years of professional work as a preparer of consolidated financial statements of a European insurance groups it is a challenge to find a topic that is embedded in your professional work. As the daily workload is achieved by routine and standard procedures it is different to be ingenious and find new topics. The search for a topic starts with the search for a question. This question should not be superficial or too easy to solve. It should be something that has the potential to last during years of research and something that is not too far fetched or impossible to solve due to constraints. During 2007 I invested private money in AIG shares. It looked to me like a good opportunity to step into the capital market. This investment turned out to be a disaster. I lost nearly all the money invested and had to ask myself whether or not I would have been able to prevent that loss if I had read the consolidated financial statements of AIG more thoroughly in order to detect the risk position that derived from the credit default

swaps of which AIG had so many. The topic of disclosure has been with me for several years during my career. The private loss in AIG shares led me to choose it as a topic of my DBA thesis. Consolidatedfinancial statements offer a basis of information that is easy to access
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and available from every listed company. The financial crisis that started in 2007 at a time when I was searching for a topic offered a point in time that made the disclosure unique. It enabled me to apply established knowledge about disclosure to a new situational setting. The result has been a contribution to the professional practice of accounting from the empirical financial market point of view and from a nonquantitative disclosure point of view. The uniqueness of the topic has been the combination of these two points of view that was only possible because of the extraordinary circumstances through which the financial market and the European insurance groups were going in the recent financial crisis. Flexibility in searching for a topic is essential. After having made it halfway through the literature review and side stepping other variations of the topic, the idea was finalized. However, a critical check for every idea is the complexity and the data availability. Although the relationship between investors and the communication of European insurance groups is quite complex assumptions had to be made in order to make research steps possible. Such assumptions are restrictions to the first idea but they need to be done and they should focus on the availability of data. Quarterly financial statements were not available from a lot of listed insurance groups, annual financial statements however were. They are posted on the internet sites of the companies. Conference calls or other investor interviews were not comparable between companies and ad-hoc messages about the disclosure of share price- sensitive information were not uniformly regulated at the locations or countries of listing. Getting deeper and deeper into the topic the research approach needed further refining. After checking the regulation requirements of annual financial statements a further restriction on

international financial reporting standards limited the group of analysis even more. Well known insurance groups that report according to national accounting requirements that are not as explicit about risk disclosure had to be excluded from the research study. This included AIG because it reports according to US-GAAP accounting standards. However, at the end of this process a coherent group of listed insurance groups with a similar business structure had been refined. Unfortunately the number of European insurance groups that could be analyzed and compared in this research study was down to thirteen. This required a change in my perspective from choosing a quantitative approach towards a mixed method approach using interviews to verify the results that have been based on too small a statistical basis. The advantage of the rigorous restriction on comparable, international financial reporting standards using 153

listed European insurance groups was that the group financial statements of the years within the financial crisis were available to the researcher and possible to access via computer. The advantage of this information availability stood in contrast to the availability of experts that could be interviewed on the statistical results. The

researcher contacted a lot of friends and former co-workers in order to identify experts in the field of European insurance groups. However, it was difficult to contact them in advance without results of the research and ask whether or not they would sit interviews with the researcher. So the researcher trusted promises of friends that these experts would be willing to cooperate and be available for the interviews whenever the researcher wanted to hold them. When the time came and the researcher was willing to discuss his statistical results the experts were either busy or corporate policy did not allow them to speak directly and so on. Even contacts via friends and co-workers did not help in contacting them. This restriction on experts willing to take part in interviews endangered the process of completing the thesis. Again the availability of information is essential in the process of the thesis and can overthrow the timetable made. So researchers are encouraged to include some time slots for information gathering and some reserve time. In the end it helped to persistently contact the experts, and a few agreed to take part in the semi-structured interview and to answer my questions. The quality of the content varied in the interviews. Some experts answered my questions in detail and were eager to provide additional information that helped my understanding. Other experts did not answer questions but generalized about the topic at best or talked about neighbouring topics that were not connected to the research question. During the interviews it was not possible to bring those experts back to my topic and approaches to question them were blocked. When summarizing the results of the interviews however, it proved to be helpful that data existed aside from the questions asked. It was possible to connect information and to bridge data that I was not aware of before. It was necessary to plan research steps ahead and to discipline oneself in the work process by planning work steps and defining sub-goals. However, every work plan in this thesis needed adaptation and no-

one was fully implemented. A significant degree of flexibility proved essential for the progressof this work.

154

Flexibility is a key ability not only in this research process but in daily life as well. So why did it feel so hard to rely on this flexibility? I felt that the solitude of research has been a blessing and a curse. To work alone on a subject you have picked yourself is a very rewarding activity. It is a pleasure to see that the work you have done can be traced back to you. However, there is a certain price you have to pay that comes to mind when you need flexibility. You cannot discuss the problems you face with anybody. You do have friends, a spouse and other members of your DBA programme. You can use them to get motivated or to share disappointments. When you hit a limit and you have to give up your old plan and find a new opportunity that is when you are really alone. To give up the old plan for a new plan that no one has taken so far - that is when flexibility hurts. The support of the university was readily available. Response by the supervisors was fast, helpful in the subject-matter and very supportive. Technical support is sometimes difficult to come by for long-distance students - access to a helpline would be appreciated. Technical support is not just there when you face technical problems with your SPSS software and it takes valuable time until a solution is reached. Another aspect that comes to my mind looking back is the need for persistency. This character trait seems to be more important than brilliance in order to pursue and finish the thesis. It helps to feel humble from time to time and not to allow oneself be discouraged by the inevitable setbacks but to carry on regardless without losing the flexibility mentioned above. Those who can be persistent should be grateful because their living and working conditions remain stable and supportive. When you face difficulties try to be persistent but do not break something worthy in order to continue.

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Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria:A. 1.1.and A.I.2.

Accounting A. I.1. requirements - exact specification:

Investment risk shall be measured on the basis of the recognised risk-monitoring methods used by the group. (GRS 5-20 par. 29) Depending on the type of risk involved, one of the following methods is generally appropriate to measure investment risk: determination loss level the of anticipated using a pre-defined of confidence and probability based models, such as stress tests to take account of crisis scenarios: the use of back testing techniques is recommended in this context,

techniques asset/liability management (GRS 30) 5-20 of sensitivity scenario analysis par. A. 1.2. The disclosures made on the market risk of investments shall, as a minimum, contain the following information, if this has not already been quantified by the risk monitoring methods used by the group. (GRS 5-20 par. 31) 20% fall in fair the interest the effect a value other of of shares and non-fixed securities in (upwards downwards) the interest the the effect a1% of shift curve or on market value of fixed interest securities and bonds

Results of the analysis:

# Name

Scenarios interest and market value of equity variation

Effect on Embedded Value, Value of inforce business, Value at Risk or Earnings at risk quantified
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes

Effect on equity quantified

Effect on earnings quantified

Result

1 2 3 4 5 6 7 8 9 10 11 12 13

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

No Yes No Yes No No Yes No No No Yes No

No Yes No Yes Yes No No No No No Yes No

5 5 5 5 5 5 5 5 5 5 5 5

Summary: All listed insurance companies quantify their investment risk using predominantly probability based models (European Embedded Value, Group Embedded Value, Value at Risk, Earnings at Risk or Value of in-force business) mentioned as accepted methods according to GRS 5-20 par. 29 and 30. Only one of the listed companies uses the alternative method named under GRS 5-20 par. 31 disclosing information on sensitivities that affect equity or earnings. A little less than half of the listed insurance companies disclose that information in addition to the predominantly used methods.

All listed insurance companies fulfil the accounting requirements with a quantified investment 31st, 2007. in financial December their disclosure as of statements risk

317

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: A. I.3.

Accounting A. I.3. requirements - exact specification:

An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risk arising from insurance contracts. To comply with this, an insurer shall disclose information about exposures to market risk arising from embedded derivatives contained in a host insurance contract if the insurer is not required to, and does not, measure the embedded derivatives at fair value. (IFRS 4 par. 38 and 39e)

A quantificationof this criteria is not possible.

Results of the analysis:

# Name : Scenarios interest and market value of equity variation
Yes

Disclosure that entire combined contract is treated in the accounting category "financial assets at fair value through profit/loss"
Yes

Result

Old Mutual

2 3 4 5
6'

Standard We Legal & General CNP Assurances Munich Re

ING

Yes Yes Yes No

Yes

Yes No Yes No
No

3 3 3 3
3

7 8 9 10 11 12 13

Hannover Re Generali AXA Aviva Allianz AEGON Zurich

Yes Yes Yes Yes Yes Yes Yes

Yes Yes Yes No No No No

3 3 3 3 3 3 3

Summary: All listed insurance companies disclose that embedded derivatives are separated and measured at fair value. The majority of listed insurance companies does not disclose that in to them fair that derivatives order measure at so not embedded are separable certain fair by it IAS to the 39 is the value classifying at entire combined measured contract value insurance All listed fair "financial through companies fulfil profit/loss" assets at value category the accounting requirements with a quantified investment risk disclosure in their financial St, December 31 2007. as of statements

318

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: A. 1.4.

Accounting A. I.4. requirements - exact specification:

There are no accounting requirements about risk reducing policies. However this information is essential in a crisis situation for the investor. The knowledge how the company is preparing itself against the effects of the financial crisis allows investors to judge the company and how the management leads the company. To name and describe risk reducing policies like use of derivatives, sale of certain financial assets or diversification of investments is required. A quantification of the effect of risk reducing policies is not possible, because not every policy con be accounted for as hedging under the strict hedging requirements of AS 39.

Results of the analysis:

# Name : Use of derivatives as a risk reducing policy
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

1 2 3 4 5 6 7 8 9 10 11 12 13

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

Name the kid of derivative and what kind of risk it is reducing

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Sale of equity as a risk reducing policy

Diversification as a risk reducing policy

Result

No No No Yes No No No No No Yes No No No

Yes No No Yes No Yes Yes No Yes Yes No No No

3 3 3 3 3 3 3 3 3 3 3 3 3

Summary: All listed insurance companies use derivatives as one policy to reduce market risk from interst bearing financial instruments and equity financial instruments. Additionally two companies sold equity financial instruments in order to reduce their market risk and nearly half of the listed insurance companies disclosed diversification as a policy to reduce their market risk. By naming and describing at least one risk reducing policy all listed insurance companies disclose specific qualitative information on this criteria in their financial statements as of December 31St, 2007.

319

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: A.11.1. Criteria: creditrisk

Accounting requirements - exact specification: A. I1.1.
An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risk arising from insurance contracts. (IFRS 4 par. 38) An insurer shall disclose information about credit risk that IFRS 7 par. 31-42 would require if the insurance contracts were within the scope of IFRS 7. (IFRS 4 par. 39d) An entity shall disclose information that enables users of its financial statements evaluate the nature and extent of risk arising from financial instruments to which the entity is exposed at the reporting date. (IFRS 7 par. 31) The disclosures focus on the risk that arise from financial instruments and how they have been managed. (IFRS 7 par. 32) Following information are required for each credit risk arising from financial instruments: date. (IFRS 7 par. 34 the to Quantification reporting at credit risk of maximum exposure " and 36a)

"
"

Analysis of age of financial assets that are past due as at the reporting date but not impaired (IFRS 7 par. 37a)

Informationabout the credit quality of financial assets (IFRS 7 par. 36c)

Results of the analysis: Quantification # Name

of credit risk exposure by investments

Disclosure of rating information of investments

Yes Yes Yes Yes Yes Yes Yes Yes
Yes

Disclosure of age of investments that are past due but not impaired
Yes No Yes No No No No No
No

Disclosure of change in fair value attributable to change in credit risk

No No No No No No No No
No

Result

1 2 3 4 5 6 7 8
9

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali
AXA

Yes Yes Yes Yes Yes Yes Yes Yes

Yes

5 3 5 3 3 3 3 3
3

10 11
12 13

Aviva Allianz
AEGON Zurich

Yes Yes
Yes Yes

Yes Yes
Yes Yes

Yes No
No No

Yes No
No No

5 3
3 3

Summary: All listed insurance companies quantify their credit risk exposure mostly by disclosing it together with the ratings of their investments. The required disclosure of the aging of investments is disclosed by only three listed insurance companies and the non required disclosure of change in fair value attributable to changes in credit risk is provided by only one listed insurance company. Quantification: Required information about the ageing of investments are not disclosed by all listed insurance 5 but 3 does If information Therefore receive not point only points. quantitative companies. is disclosed investments 5 information the points are of ageing about required additionally granted.

320

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: A. III.1.

Accounting A. III. 1. requirements - exact specification:

An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risk arising from insurance contracts. To comply with this an insurer shall disclose information about exposures to liquidity risk that IFRS 7 par 31 - 42 would require if the insurance contracts were within the scope of IFRS 7 (IFRS 4 par. 39d). An entity shall disclose a description of how it manages the liquidity risk (IFRS 7 Par. 39b). An insurer need not to provide the maturity analysis required by IFRS 7 par. 39a if it discloses information about the estimated timing of the net cash outflows resulting from recognised insurance liabilities instead. Results of the analysis:
# Name Disclosure about liquidity Quantificationof liquidity risk Result risk inherent and Asset liability matching performed Timing of returns from Timing of obligations from insurance contracts assets Yes No No 1 No Yes Yes 5 Yes No No I Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No No No No Yes No Yes Yes No No Yes No Yes No Yes No 5 3 1 1 3 1 3 1 5 I

I 2 3 4 5 6 7 8 9 10 11 12 13

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva Allianz 1 AEGON Zurich

Summary: All listed insurance companies disclose that they actively manage their liquidity risk. As recommended in the IFRS 7 requirements only three listed insurance companies describe their liquidity management by quantifying the timing of return from their assets. Five listed insurance companies fulfil the requirements by disclosing the timing of projected payments from their insurance obligations. Quantification: All information disclosed about the liquidity risk and how it is managed can be The (1 legally required disclosure information point). as qualitative general considered be insurance timing from the contracts can considered a specific of obligations about disclosure information (3 the voluntary about the timing of points) and qualitative (5 from information points). assets as a qualitative returns

321

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: A. III.2.

Accounting A. I11.2. requirements - exact specification:

There is no accounting regulation that requires a sensitivity analysis in regard to liquidity risks by listed insurance companies. However as liquidity is essential to insurance companies significant changes in the market value of investments, in the in flow the due to the investment issuers projected cash and changes risk of credit crisis should be commented by listed insurance companies. This can be done most convincingly for investors by quantifying effects and scenarios. The cash outflow of insurance related factors (lapse or mortality) can change as a result that these factors differ from historic assumptions. The cash inflow of investments can differ from historic assumptions due to a significant loss in market value or the default of creditors. These effects of changing cash flows can be disclosed as sensitivities to earnings/equityor Embedded Values.
Results of the analysis:
# Name Cash outflow sensitivity Effect on on Effect earnings or Embedded Value disclosed equity disclosed Yes Yes Yes No No Yes No No No No No No Yes No Yes Yes Yes Yes No Yes Yes No No No No No Cash inflow sensitivity Effect on earning Effect equity Embedded or disclosed disclosed Yes No No No No No No No No No No No No No Yes Yes No Yes No Yes No No No No No No Result on Value 5 3 3 3 5 1 5 3 1 3 1 5 5

I 2 3 4 5 6 7 8 9 10 11 12 13

Old Mutual Standard Life & Legal General CNP Assurances Munich Re ING Hannover Re General! AXA Aviva Allianz AEGON Zurich

Summary: Ten out of thirteen listed insurance companies disclose the effect that changes in historic insurance related assumptions have on either earnings/equity or the disclose insurance listed the effect Five thirteen companies value. out of embedded that changes in their investment related assumptions have on either earnings/equity or the embedded value.

Quantification: Since the disclosure is not required all listed insurance companies that do not provide information receive 1 point. All companies that disclose cash outflow sensitivities on inflow Embedded cash or cash outflow about receive values either earning/equity or
322

receive 3 Points. Listed insurance companies that disclose sensitivities on cash in- and cash outflows receive 5 points.

323

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: B.I.

Accounting B.I. requirements - exact specification:

Following general accounting regulation require information about how financial instruments on the debit side of the balance sheet are measured. An entity shall disclose in the summary of significant accounting policies the measurement basis used in preparing the financial statements (IAS 1 par. 117a). It is important for an entity to inform users of the measurement basis used in the financial statements, because the basis on which an entity prepares the financial statements significantly affects users'analysis (IAS 1 par. 118). The implementation guide of the general accounting standards on financial instruments lines the goal of measuring as follows: If a market for financial instruments is not active, an entity establishes fair value by using a valuation technique (IAS 39 AG 74). The objective of using a valuation technique is to establish what the transaction price would have been on the measurement date in an arm's length exchange motivated by normal business considerations. A valuation technique would be expected to arrive at a realistic estimate of the fair value if it reasonably reflects how the market could be expected to price the instrument and the inputs to the valuation technique reasonably represent market expectations (IAS AG in financial instrument 39 75) factors inherent the the of risk measures return and

Results of the analysis:

# Name Categories of [AS 39 used and disclosure of their the effect on balance sheet and rofit/loss Fair value determination Specification these of alternative valuation technique Quantification of financial assets measured at fair value without active markets

Directly measured by reference to active an market 1 2 3 4 Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali
AXA

Yes Yes Yes Yes Yes Yes Yes Yes

Yes

Yes Yes Yes Yes Yes Yes Yes Yes

Yes

Indirectly measured by alternative valuation technique Yes Yes No Yes Yes Yes Yes Yes
Yes

No No No No Yes No No No
Yes

No No No No No No No No
Yes

3 3 1 3 3 3 3 3
5

6 7 8
9

13

Aviva Allianz AEGON Zurich

Yes Yes Yes Yes

Yes Yes Yes Yes

Yes Yes Yes Yes

No Yes Yes No

Yes No No No

5 3 3 3

Summary: All listed insurance companies disclose the IAS 39 categories used and their effect on either directly to All disclose their measured references an active equity. companies or earnings

324

market but one listed company does not refer to alternative valuation techniques. Although using them only four listed insurance companies specify these valuation methods and only two quantify the financial instruments measured with these valuation techniques. Quantification: Disclosure requirements about the IAS 39 categories and the fair value measurement on active markets can be considered as general information (1 point). Explanations about alternative valuation techniques or the specification of these techniques can be considered specific qualitative information (3 points). The information how many financial instruments are measured using these alternative valuation techniques is a quantitative information (5 points).

325

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: B.II.

Accounting B.II. requirements - exact specification:

Following general accounting regulation require information about how financial instruments on the debit side of the balance sheet are measured. An entity shall disclose in the summary of significant accounting policies the measurement basis used in preparing the financial statements ([AS 1 par. 117a). It is important for an entity to inform users of the measurement basis used in the financial statements, because the basis on which an entity prepares the financial statements significantly affects users'analysis (IAS 1 par. 118).

Results of the analysis:

# Name Categories of IAS 39 used and disclosure of their effects on the balance sheet and profit/loss
Yes No
& No

Specific measuring techniques of fair values for financial liabilities

Disclosure about own credit risk considered in the valuation techniques of financial liabilities
No No
No

Result

1 2 -Y 4 5 6 7 8 9
10

Old Mutual Standard Life

Legal General CNP Assurances

Yes No
No

0 0
0

No No Yes Yes Yes Yes

No

No No Yes Yes No No
No

No No No No No No
No

0 0 0 0 0 0
0

Munich Re ING Hannover Re Generali AXA

Aviva

11 12 13

Allianz AEGON Zurich

Yes Yes Yes

Yes Yes Yes

Yes Yes No

0 0 0

Summary: Eight out of thirteen listed insurance companies disclose the IAS 39 categories they use for financial liabilities and six of them specify the valuation techniques used to measure the fair insurance listed disclose Only the liabilities. financial two their companies of of value information about their own credit risk being considered in the valuation techniques of their financial liabilities. Quantification: The disclosure on the valuation methods of financial liabilities is very limited. The reason might be that listed insurance companies do usually not depend on bonds as a financial instrument or that financial liabilities are connected only to certain insurance products (like unit linked Due to disclosure these by insurance the listed being restrictions companies. sold products) insurance listed be the differs financial liabilities and companies shall not strongly among about included in the analysis and therefore not quantified.

326

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria:B.III.

Accounting B.III. requirements - exact specification:

Following general accounting regulation require information about reasons for measuring insecurities.
An entity shall disclose the judgements that management has made in the process of applying the entity's accounting policies and that have the most significant effect on the amounts recognized in the financial statements (IAS I par. 122). An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year (IAS 1 par. 125).

Results of the analysis:

Name Statement that estimates and assumptions are used in the preparation of financial the statements Yes No Yes Yes
No

1 2 3 4
5

Old Mutual Standard Life

& Legal General CNP Assurances Munich Re

General reference that financial instruments that are not quoted on an active market Yes No Yes Yes
No

Other specific Specification of risk from assumptions for change of used financial assumptions financial instruments in of financial instruments the statements No No No No No No Yes
No

Quantification of risk from in changes assumptions (actual or pervious year) No No No No

No

1 -1 1 3
-1

No
No

6 7 8 9 10 11 12 13

ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

Yes Yes Yes Yes Yes Yes Yes Yes

Yes Yes Yes Yes Yes No Yes Yes

No No No Yes No No No Yes

No No No Yes No No No Yes

No No No No No No No No

1 1 1 3 I 1 1 3

Summary: Eleven out of thirteen listed insurance companies disclose the statement that estimates and financial ten them disclose in their the and statements of of are used preparation assumptions Only listed insurance instruments. three financial inactive for information market about general the information the detailed used and about assumptions provide and specific companies changes in from No the assumptions. risk company quantifies risk. associated Quantification: No information provided leads to a negative judgement (-1 points). Statement of estimates and information be inactive to general considered as can markets as as reference well assumptions (1 point). Explanations about assumptions made and the resulting risk can be considered as from information in The information (3 about results changes points). qualitative specific information be (5 before in this quantitative considered a can calendar year or assumptions points).

327

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: C.I.1.

Accounting C.I.I. requirements - exact specification:

German accounting requirements on risk disclosure are stated in GAS 15. It is assumed that all listed insurance companies can comply with these requirements by voluntarily disclosing such information. Management's expectations for the future development of the results of operations and financial position of the group shall be presented and described at a minimum, as either a positive or a negative trend. The effects of the significant influencing factors shall be discussed (GAS 15 par. 89).

Results of the analysis:

# Name General information about future trends No Yes No No No Yes No No No No
Yes

I 2 3 4 5 6 7 8 9 10
11

Old Mutual Standard Life & Legal General

CNP Assurances

Discussionof significant influencing factors that have a negative impact on the company No No Yes No Yes No No No Yes Yes
No

Quantificationof future negative impact of stated influencing factors No No No No No No No No No No

No

No information disclosed

Results

Yes No No Yes No No Yes Yes No No

No

-1 1 3 -1 3 1 -1 -1 3 3
1

Munich Re ING Hannover Re Generali AXA Aviva

Allianz

12 13

AEGON Zurich

No No

Yes No

No No

No Yes

3 -1

Summary: Five out of thirteen listed insurance companies disclose no information about future negative impact on their company. Three companies disclose general information about future trends. Five listed insurance companies discuss significant influencing factors and their negative impact on their company in the future. No company quantifies the negative impact.
Quantification: No information provided leads to a negative judgement (-1 points). General information about future trends leads to a positive judgement (1 point). The discussion of significant influencing factors that have a negative impact on the listed insurance company can be considered as future impact by stated information The (3 of negative quantification qualitative points). specific influencing factors can be considered a quantitative information (5 points).

328

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: C.I.2.

Accounting C. I.2. requirements - exact specification:

German accounting requirements on risk disclosure are stated in GAS 15. It is assumed that all listed insurance companies can comply with these requirements by voluntarily disclosing such information. The expected development of the group for the following two financial years shall be described, together with significant opportunities and risks associated with this development. The expected volume of future capital expenditures and the expected financial effects shall be discussed (GAS 15 par. 84).

Results of the analysis:

# Name General information about development of the group in the following two financial years Yes Yes Yes Yes No No No No No No No No
Yes

Specific information about risk that might significantly affect the group in the following two financial years OR negative statement that such an information is not disclosed No No No No No Yes (neg. statement) No Yes ne statement) . Yes (neq. statement) No No No
No

Quantified results or dividends for the following year or next two financial years

No information disclosed

Results

1 2 3 4 5 6 7 8 9 10 11 12
13

Old Mutual Standard Life Legal & General CNP

Assurances

No No No No Yes No Yes No No Yes Yes No

No

No No No No No No No No No No No Yes
No

1 1 1 1 5 3 5 3 3 5 5 -1
1

Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON

Zurich

Summary: One out of thirteen listed insurance companies, disclose no result forecast. Five companies disclose general information about developments in the next two years. Three companies disclose a negative statement when they state that a result forecast is not possible. Four listed insurance companies provide forecasts on results or dividends for the next one or two financial years. Quantification: No information provided leads to a negative judgement (-1 points). General information about the development of the group within the future time period leads to a positive judgement (1 point). The disclosure of specific risk information or a negative statement that no disclosure is provided is measured with three points. The disclosure of future dividends or results can be considered a quantitative information (5 points).

329

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: C.11.1

Accounting C.II.1 requirements - exact specification:

German accounting requirements on risk disclosure are stated in GAS 5. It is assumed that all listed insurance companies can comply with these requirements by voluntarily disclosing such information. It is recommended that inter-dependencies between individual risks are described: it is mandatory to do so, where an appropriate assessment of the risk is otherwise not possible (GAS 5 par. 25)

Results of the analysis:

# Name General informationabout risk interdependencies Specific information about interdependencies and how they are measured or recognized in the
company

Quantificationof risk interdependencies effects or diversification effects no No No No

No

No information about risk interdependencies

Results

1 2 3 4
5

Old Mutual Standard Life & Legal

General

No No Yes No
No

No No No No
Yes

Yes Yes No Yes

No

-1 -1 1 -1
3

CNP Assurances
Munich Re

6 7
8

ING Hannover Re
Generali

No No
No

No Yes
No

No No
No

Yes No
Yes

-1 3
-1

9
10

AXA
Aviva

No
No

Yes
No

No
No

No
Yes

3
-1

11 12 13

Allianz AEGON Zurich

No No No

No Yes no

No No No

Yes No Yes

-1 3 -1

Summary: Eight out of thirteen listed insurance companies disclose no information about future risk interdependencies in their company. One company discloses general information about risk Four listed insurance companies specify information about risk interdependencies. interdependencies in the future. No company quantifies risk interdependency effects or diversification effects. Quantification: No information provided leads to a negative judgement (-1 points). General information about Specific information (1 disclosed judgement leads interdependencies to point). a positive risk in the be how interdependencies they or recognized company measured can and are about (3 The information points). quantification of risk as qualitative specific considered interdependency effects or diversification effects can be considered quantitative information (5 points).

330

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: C.II.2.

Accounting C.11.2. requirements - exact specification:

For each type of risk arising from financial instruments, an entity shall disclose concentration of risk (IFRS 7 par. 34c). If the quantitative data disclosed as at the reporting date are unrepresentative of entity's exposure to risk during the period, an entity shall provide further information that is representative (IFRS 7 par. 35).

Results of the analysis:

#Name General information about risk concentration arising from financial instruments
No

Specific and Quantified data on representative risk concentration information about risk concentration arising financial from instruments AND negative statement that no risk concentration exists
No No

No information disclosed

Results

Old Mutual

Yes

2 3 4 5
6.

Standard Life & Legal General CNP Assurances Munich Re

ING

No No No No
No

No No No Yes
Yes

No No No No
No

Yes Yes Yes No

No

-1

-1 -1 -1 3
3

7 8 9 10 11 12 13

Hannover Re Generali AXA Aviva Allianz AEGON Zurich

No No No No No No No

No No No No Yes No No

Yes No No No No Yes No

No Yes Yes Yes No No Yes

5 -1 -1 -1 3 5 -1

Summary: Eight out of thirteen listed insurance companies disclose no information about risk information Three disclose about risk concentrations (for specific companies concentration. insurance Two listed investments by companies provide economic sectors). example quantitative information about risk concentration arising from financial instruments. Quantification: No information provided leads to a negative judgement (-1 points). General information about risk concentration from financial instruments leads to a positive judgement (1 point). The disclosure of specific and representative information about risk concentration or a negative statement that no risk concentration exists is measured with three points. The disclosure of information (5 points). data be quantitative considered risk concentration can on quantitative

331

Appendix C: Scoring documents for measuring risk disclosure performance

Pre Crisis Check-List Summary: Criteria: C.11.3.

Accounting C. 1I. 3. requirements - exact specification:

German accounting requirements on risk disclosure are stated in GAS 5. It is assumed that all listed insurance companies can comply with these requirements by voluntarily disclosing such information. In the case of risk threatening the existence of an enterprise, the forecast period is generally one year (GAS 5 par. 24).

Results of the analysis:

# Name General information about risk threateningthe existence of the company No No
No

I 2
3

Old Mutual Standard Life

Legal General &

Specific information about risk threateningthe existence of the company OR Negative statement No No
Yes (negative statement)

No information disclosed Yes Yes

No

Results

-1 -1
3

4 5 6 7
8

CNP Assurances Munich Re ING Hannover Re

Generali

No No No No
No

No No No No
No

Yes Yes Yes Yes

Yes

-1 -1 -1 -1
-1

9
10 11

AXA
Aviva Allianz

No
No Yes

No
No No

Yes
Yes No

-1
-1 1

12 13

AEGON Zurich

No No

Yes Yes

No No

3 3

Summary: Nine out of thirteen listed insurance companies disclose no information about risk threatening the existence of the company. One listed insurance company discloses general information. Two'companies disclose specific information and one company makes a negative statement. Quantification: No information provided leads to a negative judgement (-1 points). General information about judgement (1 leads to the the threatening a positive existence of company point). The risk disclosure of specific information about risk threatening the existence of the company or a negative statement that no such risk exists is measured with three points. A quantification of the risk is not possible.

332

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: A.1.1. Criteria: andA.I.2.

Accounting A. 1.1. requirements - exact specification:

Investment risk shall be measured on the basis of the recognised risk-monitoring methods used by the group. (GRS 5-20 par. 29)

level determination loss the of anticipated using a of confidence and probability pre-defined based models, such as stress tests to take account of crisis scenarios: the use of back testing techniques is recommended in this context, (GRS 5-20 30) of sensitivity analysis par. scenario -

Depending on the type of risk involved, one of the following methods is generally appropriate to measure investmentrisk:

techniques management asset/liability -

A. l.2. The disclosures made on the market risk of investments shall, as a minimum, contain the following information, if this has not already been quantified by the risk monitoring methods used by the group. (GRS 5-20 par. 31) the 20% fall in fair interest the non-fixed effect a and other of value of shares securities 1% interest (upwards the in downwards) the the effect of a shift curve or on market value of fixed interest securities and bonds

Results of the analysis:

Name Scenarios interest and market value of equity variation
Yes Yes

Effect on Embedded Value, Value of inforce business, Value at Risk or Earnings at risk quantified
Yes Yes Yes Yes Yes Yes
Yes

Effect on equity quantified

No Yes No No Yes Yes
Yes

Effect on earnings quantified

Result

I 2 3 4 5 6
7

Old Mutual Standard Life & Legal General CNP Assurances Munich Re ING
Hannover Re

Yes Yes
Yes

No Yes No No Yes Yes

No

5 5 5 5 5 5
5

Yes

Yes Yes
Yes

Generali '

Yes Yes Yes Yes No Yes

Yes No Yes Yes Yes No

No No Yes No Yes No

5 5 5 5 5 5

10 11 12 13

Aviva Allianz AEGON Zurich

Yes Yes Yes

Yes

Summary: All listed insurance companies quantify their investment risk using predominantly probability based models (European Embedded Value, Group Embedded Value, Value at Risk, Earnings at Risk or Value of in-force business) mentioned as accepted methods according to GRS 5-20 the 30. Only 29 listed the uses alternative method named under eight companies and of par. GRS 5-20 par. 31 disclosing information on sensitivities that affect equity or earnings. A little

333

less than half of the listed insurance companies disclose that information in addition to the predominantly used methods. All listed insurance companies fulfil the accounting requirements with a quantified investment risk disclosure in their financial statements as of December 31st, 2008. Quantification: The accounting requirements can be fulfilled with scenarios showing the effect on equity, earnings and embedded value. This information can be considered quantitative and are granted 5 points.

334

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: A.I.3. Criteria:

Accounting A. 1.3. requirements - exact specification:

An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risk arising from insurance contracts. To comply with this, an insurer shall disclose information about exposures to market risk arising from embedded derivatives contained in a host insurance contract if the insurer is not required to, and does not, measure the embedded derivatives at fair value. (IFRS 4 par. 38 and 39e)

Results of the analysis:

# Name Scenarios interest and market value of equity variation Disclosure that entire combined contract is treated in the accounting category "financial assets at fair value through profit/loss'
Yes Yes No Yes No
No

Result

I 2 3 4 5
6

Old Mutual Standard Life Leal & General CNP Assurances Munich Re
ING

Yes Yes Yes Yes No

Yes

3 3 3 3 3
3

7 8
9

Hannover Re Generali
AXA

Yes Yes
Yes

Yes Yes
No

3 3
3

10 Aviva 11 - Allianz 12- AEGON

13 Zurich

Yes Yes Yes

Yes

No No No
No

3 3 3
3

Summary: All listed insurance companies disclose that embedded derivatives are separated and does disclose that insurance fair listed The not companies of value. majority at measured in to them fair that derivatives measure order at so separable are not embedded certain by it IAS fair to the 39 is the classifying value at contract measured combined entire value All listed insurance "financial fair through companies fulfil profit/loss" assets at value category the accounting requirements with a quantified investment risk disclosure in their financial statements as of December 31st, 2008. Quantification: Information about embedded derivatives that are separated and measured at fair value can be considered a specific qualitative disclosure (3 points).

335

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: A.I.1.crisis

Accounting requirements - exact specification: A. I.1.crisis.
There are no accounting requirements about risk reducing policies. However this information is essential in a crisis situation for the investor. The knowledge how the company is preparing itself against the effects of the financial crisis allows investors to judge the company and how the management leads the company. To name and describe risk reducing policies like use of derivatives, sale of certain financial assets or diversification of investments is required. A quantification of the effect of risk reducing policies is not possible, because not every policy con be accounted for as hedging under the strict hedging requirements of IAS 39.

Results of the analysis: Use of # Name

derivatives as a risk reducing policy
1
2

Name the kid of derivative and what kind of risk it is reducing

Yes
Yes

Sale of equity as a risk reducing policy

Diversification as a risk reducing policy

Result

Old Mutual
Standard Life

Yes
Yes

No
No

Yes
No

3
3

3 4 5 6 7 8 9 10 11 12 13

& Legal General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Yes Yes Yes Yes Yes No No Yes Yes Yes No

Yes No No No Yes No No No No No No

3 3 3 3 3 3 3 3 3 3 3

Summary: All listed insurance companies use derivatives as one policy to reduce market risk from interst bearing financial instruments and equity financial instruments. Eight out of thirteen companies sold equity financial instruments in order to reduce their market risk and three the listed insurance companies disclosed diversification as a policy to reduce their market risk. By listed insurance disclose least describing companies policy all at risk and one reducing naming financial December in information their this 31st, statements as of qualitative criteria on specific 2008. Quantification: No information provided leads to a negative judgement (-1 points). General information about The (1 disclosure judgement lead to point). of specific a policies positive reducing risk information about risk reducing strategies is measured with three points. The disclosure of be because is data not every policy can accounted for as policies not possible, quantitative hedging under the strict hedging requirements of AS 39.

336

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: A. I.3.crisis

Accounting A. 1.3. crisis requirements - exact specification:

There are no accounting requirements about the disclosure of how a listed insurance company is affected by changes in the market value of certain financial instruments. However this information is essential in the crisis situation for the investor. The investor gets to know through the media the names of defaulted banks and toxic assets. They want to understand to what degree the listed insurance company is affected by this.

This crisis specific risk disclosure can consist of three parts:

" " To name the categories of investments by listed insurance companies that are predominantly affected by the financial crisis To mention the reaction by the listed insurance companies to handle the market risk arising from these specific investments

To quantify the market risk of these investments by disclosing their book value, their current fair value, the unrealized losses and the realized losses (impairments) of these investments.
"' To disclose the expectation of the capital market (rating) towards these investments.

Results of the analysis:

Name Category of critical investments Exposure to subprime 1 2 3 4
5 Reaction towards risk

Valuation of critical investments Book value Yes Yes No Yes

Yes

Specification Impairment Investment grade of critical investments Yes Yes Yes No

No

Result

Exposure to default banks Yes Yes No Yes

Negativ

Reducing mean No Yes Yes No

Yes

Fair value Yes No Yes No

No

Unrealized loss-

Old Mutual
Standard Life

Yes Yes Yes Yes

Yes

No No No No
No

No No No Yes
Yes

1 3 3 1
3

Legal & General CNP Assurances

Munich Re

6 7 8
9

ING Hannover Re Generali

AXA

Yes Yes No
Yes

Yes Yes No
No

Yes No No
No

Yes No No
Yes

Yes Yes No
Yes

Yes No No
Yes

Yes Yes No
Yes

Yes Yes No
Yes

5 I -1
5

10 11 12 13

Aviva Allianz AEGON Zurich

Yes Yes Yes No

Yes No No Yes

Yes No Yes No

No Yes Yes Yes

No No Yes Yes

No No Yes Yes

No No Ne ativ Yes

No No Yes Yes

3 1 3 5

Summary: Listed insurance companies are affected differently by the fall in market value of critical investments. With the exception of Generali and Zurich all listed insurance companies state that they have subprime investments in the forms of asset backed securities, residual mortgage backed securities, commercial mortgage backed securities or commercial debt involvement in Generali Zurich do any subprime critical mention and not obligations. investments but do not state that they are not affected at all (negative statement). More than half of the listed insurance companies disclose their involvement in investments with critical banks such as Lehman, Washington Mutual and Monoliners. Only Munich Re gives a negative

337

statement about this involvement. The other listed insurance companies do not disclose information about their risk exposure.
Half of the listed insurance companies disclose activities to reduce the exposure to either subprime or default bank risk. They name swaps, derivatives and sale of bank shares to reduce their risk exposure. All but three listed insurance companies that disclose their exposure to subprime or bank default investment risk explicitly mention the book value of their involvement. But only together with. the disclosure of fair value or losses (unrealized or impaired) can investors evaluate how far the risk has been realized. Only half of the listed insurance companies provide this kind of information. The loss that can be further expected from the subprime or default bank investments of each listed, insurance company can be predicted on the basis of the opinion of rating agencies on the investments. Eight listed insurance companies disclose that information about their crisis specific risk investments. Quantification: Unless explicitly stated by a negative information it can be assumed that all listed insurance bank investments. default When no by investors or subprime as are affected major companies involvement is disclosed it is a no information -1 Point. General information are provided when the investment with market risk specific to the crisis are disclosed and the book or fair value disclosed 1 Point. Specific information are disclosed when additionally risk reducing means to cope with the risks are mentioned 3 Points. Quantitative information is provided when the historic and outlook are quantified with the amount of impairment and the rating of crisis specific investments are disclosed 5 Points. Special advice: Listed insurance companies can be affected by the crisis because they own crisis specific risky at These be high investments with a all. companies can or not affected erosion, market price disclosure is So four disclose types their they risk performance of risk cannot. or either in investments their portfolio, extensive from Type High A: crisis specific market risk possible: risk disclosure in their annual financial statements

Type B: High market risk from crisis specific investments in their portfolio, little or no risk disclosure in their annual financial statements
Type C: Low or no market risk from crisis specific investments in their portfolio, extensive risk disclosure in their annual financial statements The extent of risk from crisis specific investments cannot be detected unless disclosed in the of beginning from the the financial However the equity of crisis reduction statements. annual difficulties that indication financial 2008 be arose as a result of market value of can an until erosion of crisis specific investments.

Type D: Low or no market risk from crisis specific investments in their portfolio, little or no risk disclosure in their annual financial statements

338

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: A. II.1. Accounting requirements - exact specification: A. II.1.
An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risk arising from insurance contracts. (IFRS 4 par. 38) An insurer shall disclose information about credit risk that IFRS 7 par. 31-42 would require if the insurance contracts were within the scope of IFRS 7. (IFRS 4 par. 39d) An entity shall disclose information that enables users of its financial statements evaluate the nature and extent of risk arising from financial instruments to which the entity is exposed at the reporting date. (IFRS 7 par. 31) The disclosures focus on the risk that arise from financial instruments and how they have been managed. (IFRS 7 par. 32) Following information are required for each credit risk arising from financial instruments: date. (IFRS 7 par. 34 Quantification to the at reporting maximum credit risk of exposure " and 36a)

"
"

Analysis of age of financial assets that are past due as at the reporting date but not impaired (IFRS 7 par. 37a)

Informationabout the credit quality of financial assets (IFRS 7 par. 36c)

#T

Results of the analysis:

Name :

Quantification of credit risk exposure by investments

Disclosure of rating information of investments

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Yes

Disclosure of age of investments that are past due but not impaired
Yes No Yes No No No No No No Yes
No

Disclosure of change in fair value attributable to change in credit risk

Yes No Yes No No No No No No Yes
No

Result

1 2 3 4 5 6 7 8 9 10
11

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva
Allianz

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Yes

5 3 5 3 3 3 3 3 3 5
3

12 13

AEGON Zurich

Yes Yes

Yes Yes

No No

No No

3 3

Summary: All listed insurance companies quantify their credit risk exposure mostly by disclosing it together with the ratings of their investments. The required disclosure of the aging of investments is disclosed by only two listed insurance companies and the non required disclosure of change in fair value attributable to changes in credit risk is provided by three listed insurance companies. Quantification: Required information about the aging of investments are not disclosed by all listed insurance but 5 does Therefore information receive points not only 3 points. If quantitative companies.

339

additionally the required information about the aging of investments is disclosed 5 points are granted.

340

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: A.II.1.crisis

Accounting A. II. 1.crisis requirements - exact specification:

There are no accounting requirements about the disclosure of how a listed insurance company is affected by defaults of creditors of certain financial instruments. However this information is essential in the crisis situation for the investor. The investor gets to know through the media the names of defaulted banks. They want to understand to what degree the listed insurance company is affected by these defaults.

This crisis specific risk disclosure can consist of three parts:

"

" "

To describe the financial involvement of listed insurance companies by defaulted creditors in the financial crisis that are common knowledge to the public (Lehman and Iceland banks) To quantify the financial involvement of the listed insurance company with these creditors To quantify the loss the listed insurance company took as a result of the default of these creditors

Results of the analysis:

# 1 2 3 4 5 6 7 8 9 10 11 12 13 Name Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich Qualitative description of financial involvement Yes No Yes Yes Yes Yes Yes No Ne ative Yes No Yes No Quantification of involvement Yes No Yes Yes Yes Yes Yes No No No No Yes No Quantification of loss Yes No Yes Yes Yes Yes Yes No No No No Yes No Result 5 -1 5 5 5 5 5 -1 3 3 -1 5 -1

Summary: Listed insurance companies are affected differently by the default of Lehman and Icelandic banks as creditors of their investments. Eight listed insurance companies state that they have investments by the above mentioned creditors. Four listed insurance companies do not mention any involvement with these creditors but only AXA states that it is not affected at all (negative statement). More than half of the listed insurance companies quantify their financial involvement in investments with critical banks such as Lehman, Washington Mutual or Icelandic banks which defaulted. The other listed insurance companies do not quantify their risk credit exposure. Half of the listed insurance companies disclose activities to reduce the exposure to either subprime or default bank risk. They name swaps, derivatives and sale of bank shares to reduce their risk exposure. Seven listed insurance companies disclose loss.

341

Quantification: Unless explicitly stated by a negative information it can be assumed that all listed insurance companies as major investors are affected by the default of the creditors Lehman, Washington Mutual or Icelandic banks. When no involvement is disclosed it is regarded as no information 1 Point. To name involvement in the default of the above mentioned creditors is considered a involvement information the information Quantitative 3 Points. on and the loss general specific are disclosed 5 Points. Special advice: Listed insurance companies can be affected by the crisis because they own crisis specific risky investments with a high market price erosion, or be not affected at all. These companies can either disclose their risk or they cannot. So four types of risk disclosure performance is possible: Type A: High market risk from crisis specific investments in their portfolio, extensive disclosure in their annual financial statements risk Type B: High market risk from crisis specific investments in their portfolio, little or no risk disclosure in their annual financial statements Type C: Low or no market risk from crisis specific investments in their portfolio, extensive risk disclosure in their annual financial statements Type D: Low or no market risk from crisis specific investments in their portfolio, little or no risk disclosure in their annual financial statements The extent of risk from crisis specific investments cannot be detected unless disclosed in the from beginning the financial However the of the crisis of equity reduction statements. annual until 2008 can be an indication of financial difficulties that arose as a result of market value erosion of crisis specific investments.

342

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: A.III.1.

Accounting A. I11.1. requirements - exact specification:

An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risk arising from insurance contracts. To comply with this, an insurer shall disclose information about exposures to liquidity risk that IFRS 7 par. 31 - 42 would require if the insurance contracts were within the scope of IFRS 7 (IFRS 4 par. 39d). An entity shall disclose a description of how it manages the liquidity risk (IFRS 7 par. 39b). An insurer need not to provide the maturity analysis required by IFRS 7 par. 39a if it discloses information about the estimated timing of the net cash outflows resulting from recognised insurance liabilities instead.

Results of the analysis:

# Name Disclosure about liquidity Quantificationof liquidity risk risk inherent and Asset liability matching performed
Timing of returns from assets Timing of obligations from insurance contracts

Result

1 2 3 4 5 6 7 8 9 10 11 12 13

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

No Yes No Yes No No No Yes No No No No No

No No No No Yes No No Yes No Yes No Yes Yes

1 5 1 5 3 I 1 5 I 3 1 3 3

Summary: All listed insurance companies disclose that they actively manage their liquidity risk. As recommended in the IFRS 7 requirements only three listed insurance companies describe their liquidity management by quantifying the timing of return from their assets. Five listed insurance companies fulfil the requirements by disclosing the timing of projected payments from their insurance obligations. Quantification: All information disclosed about the liquidity risk and how it is managed can be considered as general qualitative information (1 point). The legally required disclosure about the timing of obligations from insurance contracts can be considered a specific qualitative information (3 points) and the voluntary disclosure about the timing of returns from assets as a qualitative information (5 points).

343

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: A.III. 2.crisis

Accounting requirements - exact specification: A. 111.2. crisis
There is no accounting regulation that requires a sensitivity analysis in regard to liquidity risks by listed insurance companies. However as liquidity is essential to insurance companies significant changes in the market value of investments, in the credit risk of investment issuers and changes in the projected cash flow due to the crisis should be commented by listed insurance companies. This can be done most convincingly for investors by quantifying effects and scenarios. The cash outflow of insurance related factors (lapse or mortality) can change as a result that these factors differ from historic assumptions. The cash inflow of investments can differ from historic assumptions due to a significant loss in market value or the default of creditors. These effects of changing cash flows can be disclosed as sensitivities to earnings/equity or Embedded Values.

Results of the analysis:

# Name Cash outflow sensitivity
Effect on earnings or equity disclosed Yes Effect on Embedded Value disclosed No

Cash inflow related)

sensitivity

(investment
on Value

Result

Old Mutual

Effect on earning equity or disclosed No

Effect Embedded disclosed No

2 3 4
5

Standard Life Legal & General CNP Assurances

Munich Re

Yes No No
No

No Yes Yes
Yes

No No No
No

No No No
Yes

3 3 3
5

6 7 8 9 10 11 12 13

ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

No No No No Yes No Yes Yes

No No Yes No No No No No

No No No No No No No No

"

No No No No No No No No

1 1 3 1 3 1 33

Assumption: Only the interest and market value sensitivity is recognized in this analysis and not changes in the foreign exchange rate. Summary: Nine out of thirteen listed insurance companies disclose the' effect that changes in historic insurance related assumptions have on either earnings/equity or the embedded value. One out of thirteen listed insurance companies disclose the effect that changes in their investment related assumptions have on either earnings/equity or the embedded value. Quantification: Since the disclosure is not required all listed insurance companies that do, not provide information receive 1 point. All companies that disclose cash outflow sensitivities on either inflow Embedded or cash outflow receive 3 Points. cash values about or receive earning/equity Listed insurance companies that disclose in addition to that sensitivities on cash in- and cash outflows receive 5 points.

344

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: B.I.

Accounting B. I. requirements - exact specification:

Following general accounting regulation require information about how financial instruments on the debit side of the balance sheet are measured. An entity shall disclose in the summary of significant accounting policies the measurement basis used in preparing the financial statements (IAS 1 par. 117a). It is important for an entity to inform users of the measurement basis used in the financial statements, because the basis on which an entity prepares the financial statements significantly affects users'analysis ((AS I par. 118).

An entity shall disclose the valuation techniques used, the assumptions applied in determining fair values of each lass of financial assets. (IFRS 7 par. 27a) An entity shall disclose whether fair values are determined in whole or in part directly by reference to published price quotations in an active market or are estimated using a valuation technique. (IFRS 7 par. 27b and IAS 39 AG 71 - 79

The accounting standard IFRS 7 on the disclosure of financial instruments specifies theses requirements:

Results of the analysis:

# Name Categories of IAS 39 used and disclosure of their the effect on balance sheet and
profittloss

Fair value determination

Specification these of alternative valuation technique

IFRS 7)

Quantification of financial assets measured at fair value without active markets

Directly measured by reference to an active market I 2 3 4 5 6 7 8 9 10 11 12 13 Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Indirectly measured by alternative valuation technique Yes No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes

No No No No Yes No Yes No Yes Yes Yes Yes No

No No No No No No No No Yes Yes No No No

3 1 3 3 3 3 3 1 5 3 3 3

Summary: All listed insurance companies disclose the IAS 39 categories used and their effect on either earnings or equity. All companies disclose their directly measured references to an active techniques. to Although listed do but two valuation alternative refer not companies market these insurance listed them valuation methods specify companies companies using six eleven these techniques. financial instruments the two with valuation measured quantify and only 345

Quantification: Disclosure requirements about the IAS 39 categories and the fair value measurement on active markets can be considered as general information (1 point). Explanations about alternative valuation techniques or the specification of these techniques can be considered specific qualitative information (3 points). The information how many financial instruments are measured using these alternative valuation techniques is a quantitative information (5 points).

346

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: B.II. Accounting requirements - exact specification: B.II.
Following general accounting regulation require information about how financial instruments on the debit side of the balance sheet are measured. An entity shall disclose in the summary of significant accounting policies the measurement basis used in preparing the financial statements (IAS 1 par. 1 17a). It is important for an entity to inform users of the measurement basis used in the financial statements, because the basis on which an entity prepares the financial statements significantly affects users'analysis (IAS 1 par. 118).

Results of the analysis:

# Name Categories of AS 39 used and disclosure of their effects on the balance sheet and profit/loss
Yes No
& No

Specific measuring techniques of fair values for financial liabilities

Disclosure about own credit risk considered in the valuation techniques of financial liabilities
No No
No

Result

1 2
3

Old Mutual Standard Life

Legal General CNP Assurances

Yes No
No

0 0
0

4 5 6 7 8 9
10

No No Yes Yes Yes Yes

No

No No Yes Yes No No
No

No No No No No No
No

0 0 0 0 0 0
0

Munich Re ING Hannover Re Generali AXA

Aviva

11 12 13

Allianz AEGON Zurich

Yes Yes Yes

Yes Yes Yes

Yes Yes No

0 0 0

Summary: Eight out of thirteen listed insurance companies disclose the IAS 39 categories they use for financial liabilities and six of them specify the valuation techniques used to measure the fair value of their financial liabilities. Only two of the listed insurance companies disclose information about their own credit risk being considered in the valuation techniques of their financial liabilities. Quantification: The disclosure on the valuation methods of financial liabilities is very limited. The reason might be that listed insurance companies do usually not depend on bonds as a financial instrument or that financial liabilities are connected only to certain insurance products (like unit linked products) being sold by the listed insurance companies. Due to these restrictions disclosure insurance listed be the differs liabilities financial companies and shall not among strongly about included in the analysis and therefore not quantified.

347

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria:B.III.

Accounting requirements - exact specification: B.III.
Following general accounting regulation require information about reasons for measuring insecurities. An entity shall disclose the judgements that management has made in the process of applying the entity's accounting policies and that have the most significant effect on the amounts recognized in the financial statements (IAS 1 par. 122). An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year (lAS 1 par. 125).

Results of the analysis:

# Name Statement that General estimates and reference that financial assumptions are used in the instruments preparation of that are not financial quoted on an the active market statements Yes Yes No No Yes Yes Yes No Yes Yes Yes Yes Yes No Yes Yes Yes No Yes Yes Yes Yes Yes No Yes Yes Other specific assumptions for used financial instruments in financial the statements No No No Yes No No No No Yes Yes No Yes No Specification of risk from change of assumptions financial of instruments No No No No No No No No Yes No No Yes No Quantification of risk from in changes assumptions (actual or pervious year) No No No No No No No No No No No No No 1 -1 I 3 -1 1 1 1 3 3 -1 3 1

1 2 3 4 5 6 7 8 9 10 11 12 13

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

Summary: Ten out of thirteen listed insurance companies disclose the statement that estimates and assumptions are used in the preparation of their financial statements and all of them disclose general information about inactive market for financial instruments. Four listed insurance companies provide detailed and specific information about the assumptions used and the in from No the changes assumptions. risk. company quantifies risk associated Quantification: No information provided leads to a negative judgement (-1 points). Statement of estimates and assumptions as well as reference to inactive markets can be considered as general information (1, point). Explanations about assumptions made and the resulting risk can be considered as information from The information (3 about results qualitative changes in points). specific assumptions in this calendar year or before can be considered a quantitative information (5 points).

348

349

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria:B.I.crisis.

Accounting B. I.crisis requirements - exact specification:

There are not accounting regulations that require listed insurance companies to disclose information about the measuring methods of certain financial instruments that are affected by the financial crisis. However as the names of certain financial instruments have become public knowledge by information in the media, investors want to know how these critical financial instruments are measured especially when no valuation is possible on active markets. This information enables investors to make a judgement about the possible future risk of the listed insurance company and about how the management is handling the crisis using aggressive or conservative valuation methods.

Results of the analysis:

# Name
Disclosure of asset types for which inactive market exists (qualitative by naming or quantitative by amount) Specification about valuation method used instead of market prices to determine fair value

Disclosure about alternative sources of data that are used to determine the fair value Yes Yes Yes Yes
Yes

I 2 3 4
5

Old Mutual Standard Life Legal & General

CNP Assurances Munich Re

No Yes Yes No
No

Yes Yes No No
No

3 3 3 3
3

6 7
8

ING Hannover Re
Generali

Yes No
Yes

Yes Yes
Yes

Yes Yes
Yes

3 3
3

9 10 11 12 13.

AXA Aviva Allianz AEGON Zurich

Yes Yes Yes Yes No

Yes No Yes Yes No

Yes Yes Yes Yes No

3 3 3 3 -I

Summary: All but one listed insurance companies disclose specific information about alternative sources of data that are used to determine the fair value. Eight companies disclosed specific information about the valuation method. Only eight listed insurance companies disclosed . , inactive by types information the markets. affected which are of asset general Quantification: No information disclosed about alternative valuation methods for financial instruments accounted for at fair value when the valuation process cannot rely on active markets leads to for inactive types the (-1 General information which asset about markets points point). negative Specifications (1 the information be about point). method used considered a general can exists instead or the information sources to determine the fair value can be considered a specific information (3 points). A quantification is not possible.

350

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: B.IV.crisis

Accounting B. IV.crisis requirements - exact specification:

The amendment to IAS 39 issued in October 2008 permits an entity to reclassify " Non-derivative financial assets at fair value through profit or loss category and " Non-derivative financial assets from the available-for-sale category to the loans and receivables category (IAS 39 amendment IN8A) This entity shall disclose: " The amount reclassified into and out of each category " For each reporting period until derecognition, the carrying amounts and fair values of all financial assets that have been reclassified " If a financial asset was reclassified the facts and circumstances indicating that the situation was rare " For the reporting period when the financial asset was reclassified the fair value gain or loss on the financial asset recognised in profit or loss in that reporting period and in the previous reporting period (IFRS 7 amendment 12A)

Results of the analysis:

# Name General information about amendments and option to reclassify Negative statement about the of use reclassification option Specific disclosure required when reclassification option is used by the entity Amount reclassified, carrying amount and fair value. No No No No No Yes No No
No No

Result

Specification of rare circumstances and quantification of profit and loss effect No No No No No No No No

No No

1 2 3 4 5 6 7 8
9 10

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali
AXA Aviva

Yes Yes Yes Yes Yes Yes Yes Yes

Yes No

Yes Yes Yes Yes Yes No Yes Yes

Yes No

3 3 3 3 3 1 3 3
3 -1

11
12 13

Allianz
AEGON Zurich

Yes
Yes Yes

Yes
Yes Yes

No
No No

No
No No

3
3 3

Summary: One listed insurance company does not disclose any information. One company used the disclosure Eleven but did requirements. option provide all necessary out of not reclassification thirteen listed insurance companies provided general information and disclosed a negative statement that they did not make use of the reclassification. Quantification: Information about the IFRS 7 and IAS 39 amendments can be considered as general information (1 point). When no information is provided this is considered with minus one point

351

(-1). Information required by IFRS 7 amendment 12A or a negative statement that the reclassification option is not used by the listed insurance company can be considered as specific qualitative information (3 points). Quantification that exceeds the disclosure requirements is not possible.

352

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria:C.I.1.

Accounting C.I.1. requirements - exact specification:

German accounting requirements on risk disclosure are stated in GAS 15. It is assumed that all listed insurance companies can comply with these requirements by voluntarily disclosing such information. The financial crisis can be considered as a significant negative impact that should be addressed by the listed insurance companies in order to timely and sufficiently inform their investors Management's expectations for the future development of the, results of operations and financial position of the group shall be presented and described at a minimum, as either a factors influencing the The trend. shall be discussed or of significant a negative effects positive (GAS 15 par. 89).

Results of the analysis:

# Name General information about future trends Yes Yes No No No No No Yes Yes No No No Yes Discussion of of Quantification negative significant influencing future factors that have a impact of stated negative impact on the influencing factors company No No No No No No No Yes Yes No No No Yes Yes Yes No No No No No No No No NoNo No No information disclosed Results

1 2 3 4 5 6 7 8 9 10 11 12 13

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

No No Yes Yes No No Yes No No No No No No

1 1 -1 -1 3 3 -1 I 1 3 3 3 1

Summary: Three out of thirteen listed insurance companies disclose no information about future negative impact on their company. Five companies disclose general information about future trends. Five listed insurance companies discuss significant influencing factors and their negative impact on their company in the future. No company quantifies the negative impact. Quantification: No information provided leads to a negative judgement (-1 points). General information about future trends leads to a positive judgement (1 point). The discussion of significant influencing factors that have a negative impact on the listed, insurance company can be considered as negative future impact by The (3 information of quantification stated qualitative points). specific influencing factors can be considered quantitative information (5 points). .

353

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: C.I.2.

Accounting C. I.2. requirements - exact specification:

German accounting requirements on risk disclosure are stated in GAS 15. It is assumed that all listed insurance companies can comply with these requirements by voluntarily disclosing such information. It is recognized that as a result of the financial crisis it is harder to forecast results. The expected development of the group for the following two financial years shall be described, together with significant opportunities and risks associated with this development. The financial the future expected effects shall be and expenditures volume capital expected of discussed (GAS 15 par. 84).

Results of the analysis:

# Name General information about development of the group in the following two financial years No No Yes Yes No No No No No No No No Yes information Specific about risk that might significantly affect the group in the following two financial years OR negative statement that such an information is not disclosed No No No No Yes Yes (neg. statement) No Yes Yes (neg. statement) No Yes No No Quantified results or dividends for the following year or next two financial years No information disclosed Results

1 2 3 4 5 6 7 8 9 10 11 12 13

Old Mutual Standard Life & Legal General CNP

Assurances

No No No No No No Yes No No No No No No

Yes Yes No No No No No No No Yes No Yes No

-1 -1 1 1 3 3 5 3 3 -1 3 -1 1

Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

Summary: Four out of thirteen listed insurance companies, disclose no result forecast. Three companies disclose general information about developments in the next, two years. Two companies disclose a negative statement when they state that a result forecast is not possible and two One, listed insurance future information disclose risk. company about specific companies financial two for dividends the forecasts years. one or next on results or provides Quantification: No information provided leads to a negative judgement (-1 points). General information about judgement to (1 time future the the development a positive period-leads the of group within disclosure that is information disclosure The statement no negative or a of specific risk point). future dividends be disclosure The is three or of results can with points. measured provided considered a quantitative information (5 points).

354

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: C.11.1

Accounting C.II.1 requirements - exact specification:

German accounting requirements on risk disclosure are stated in GAS 5. It is assumed that all listed insurance companies can comply with these requirements by voluntarily disclosing such information. Interdependencies between the financial crisis and the insurance business model must be explained when an appropriate assessment by investors should be possible. It is recommended that inter-dependencies between individual risks are described: it is mandatory to do so, where an appropriate assessment of the risk is otherwise not possible (GAS 5 par. 25)

Results of the analysis:

Name General informationabout risk interdependencies Specific information about interdependencies and how they are measured or recognized in the company
no

Quantification of risk interdependencies effects or diversification effects

No

No information about risk interdependencies

Results

Old Mutual

No

Yes

2 3 4 5 6 7 8 9 10 11 12 13

Standard Life Legal & General CNP

Assurances

No Yes No No Yes No No No Yes No No no

No No No yes No No No Yes No Yes Yes No

No No No No No No No No No No No No

Yes no Yes No No Yes Yes No No No No Yes

-1

-1 1 -1 3 I -1 -1 3 1 3 3 -1

Munich Re ING Hannover Re Generali AXA Aviva Allianz AEGON Zurich

Summary: Six out of thirteen listed insurance companies disclose no information about future risk interdependencies in their company. Three companies disclose general information about risk Four listed insurance companies specify information about risk interdependencies. interdependencies in the future. No company quantifies risk interdependency effects or diversification effects. Quantification: No information provided leads to a negative judgement (-1 points). General information about risk interdependencies leads to a positive judgement (1 point). Specific information disclosed in the interdependencies how they or recognized company can be and are measured about considered as specific qualitative information (3 points). The quantification of risk interdependency effects or diversification effects can be considered quantitative information (5 points).

355

356

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: C.II.2.

Accounting C.II.2. requirements - exact specification:

For each type of risk arising from financial instruments, an entity shall disclose concentration of risk (IFRS 7 par. 34c). If the quantitative data disclosed as at the reporting date are unrepresentative of entity's exposure to risk during the period, an entity shall provide further information that is representative (IFRS 7 par. 35).

The requirements can be applied to financial instruments that are named in the financial crisis situation. Results of the analysis:
# Name General information about risk concentration arising from financial instruments that are named in the financial crisis No No No No No No
No

1 2 3 4 5 6
7

Old Mutual Standard Life Legal & General CNP Assurances Munich Re ING
Hannover Re

Specific and representative informationabout risk concentrationarising from financial instruments named in the financial crisis AND negative statement that no risk concentration exists No No No No Yes Yes
No

Quantified data on risk concentration

No information disclosed

Results

No No No No No No
Yes

Yes Yes Yes Yes No No

No

-1 -1 -1 -1 3 3
5

8 9
10

Generali AXA
Aviva

No No
No

No Yes
No

No No
No

Yes No
Yes

-1 3
-1

11 12 13

Allianz AEGON Zurich

No No No

No No No

Yes Yes Yes

No No No

5 5 5

Summary: Six out of thirteen listed insurance companies disclose no information about risk concentration. Three companies disclose specific information about risk concentrations. Four listed insurance companies provide quantitative information about risk concentration arising from financial instruments named in the financial crisis. Quantification: No information provided leads to a negative judgement (-1 points). General information about risk concentration from financial instruments named in the financial crisis leads to a positive judgement (1 point). The disclosure of specific and representative information about risk concentration or a negative statement that no risk concentration exists is measured with three points. The disclosure of quantitative data on risk concentration can be considered quantitative information (5 points).

357

Appendix C: Scoring documents for measuring risk disclosure performance

Post Crisis Check-List Summary: Criteria: C.II.3.

Accounting C. 11.3. requirements - exact specification:

German accounting requirements on risk disclosure are stated in GAS 5. It is assumed that all listed insurance companies can comply with these requirements by voluntarily disclosing such information. In the case of risk threatening the existence of an enterprise, the forecast period is generally one year (GAS 5 par. 24).

Results of the analysis:

# Name General informationabout risk threateningthe existence of the company No No
No

1 2
3

Old Mutual Standard Life

Legal General &

Specific information about risk threatening the existence of the company OR Negative statement No No
No

No information disclosed Yes Yes

Yes

Results

-1 -1
-1

4
5

CNP Assurances
Munich Re

No
No

No
Yes

Yes
No

-1
3

6 7
8

ING Hannover Re
Generali

No No
No

No Yes (negative statement)

No

Yes No
Yes

-1 3
-1

9 10
11

AXA Aviva
Allianz

No No
No

Yes No
No

No Yes
Yes

3 -1
-1

12 13

AEGON Zurich

No No

No Yes (negative statement)

Yes No

-1 3

Summary: Nine out of thirteen listed insurance companies disclose no information about risk threatening the existence of the company. Two companies disclose specific information and two companies make a negative statement that no risk that threatens the existence of the company exists. Quantification: No information provided leads to a negative judgement (-1 points). General information about judgement (1 point). The leads to the threatening the a positive existence of company risk disclosure of specific information about risk threatening the existence of the company or a negative statement that no such risk exists is measured with three points. A quantification of the risk is not possible.

358

Appendix D: Formulas, Variables, Results and data of the event study method

Variables: n R, R. a b I S. Ssquare T K Ba S. Formulas: AR, SD, SAR, CAR ACAR Z Number of, nwance groups in tM research study (13) Me rate of reban on V. share pnca of an msunnce group i on day t Indes BEIN SUR of Bloomberg-n the rats of reorn on 0. insurance marketbenirmark tM ntarupt tann of IM OLS market model regression of an Insurance group I Or. systemabc nsk analysed In me OLS market model regression of stock I

dayt

summation veruble coefcient Standard error of on OLS market model repression of an insurance group I dunnp the estmabon period residual nnana on ft market pcnf0)U rikulalsd Number of days in me ssumaoon period (88) It started vnth BD and after two confounding events was reduced to 88 Number of days ,n the event study penod(15) later mudded to(14)and supormod, 5ad to (13) ea confounding events Mean rerun, of the knurance group I over the esbmabon period Mean return of" insurance market benc)snark index calculated over the osumaton Period

Abnormal R. Wm Standard Denabun Standardaed Abnormal Return Cundabw Abnormal Retm Average stndardued last shbsbo for e. N firm cumulaow abnormal returns

ARa"Ra-(a

Db; Rr) 2)/5UM(50UARE((RF$), 2))

SD . "(5; ((R00T(1a(1ff)a(SQUARE((Rr$a), SARi-AR J5D s CAR"ROOT(1M)'SUM(SARr) ACAR-Iin*IIROOT((T. Z"ACAR1ROOT n) 2Y(T-4))'SUM(CAR)

Assumptions: Markets are effluent The event was unanboapated The value of CAR an independent and Idenbcaly dnhrbuted There were no cunfoundvp events dunnp the went window

7. 2 3 4

ewnta: active merger and aquiuncn process duldend snnounumente urusual stock marbt events business spe a 6c events that rowed--I

Confounding

stock market reactions

To To To To

1. 2 3 4:

Resulting research restrlcdons: Checked that ZEW-ZEPHYR M&A Index of world vnde M&A scOwbes has been on kt bweat level for but yeah m September 2008 nfun the ewnt took pi cs Checked by corporate webwdss September 14th has been a inple retch day with unusuaI thing activities, eliminated from two raaearch by supemwdR d oonables September 80, was influenced by bode in Chew and Human season in the US while now contn<ts were M1apobatedin Manta Cano by the biggest nmeuranu

compares,

lead to moddod

tomb..

359

Appendix D: Formulas, Variables, Results and data of the event study method

Ormral

Ra*JH -7,5 22,5 . 39,5 , 1 4,3 40.1

z Zmcd "dm", a" modNed Zs4"rmOd AFAR ACARmo6 d ACARo pannoo

Th. . -WW.

b--.

1nWrn YSipn1cant sot5t

the near oKONanq of A1G MOa sgn5ant

Ynpod on tho Va6as of the 1010

rth. d .. wams proga

modi5. d auperma5i

R"u kauarm Group CAR CAR CAR

is per Nauancs All..

Gro p A%A Gsmra4 6,1 4,4 S, 7 . 0,6 -2,4 -1,5 ANva 4,6 1 -6,6 ING -0,7 "14,2 "16,5 Aegon 8,4 -14,1 -19 CNP 1,4 -1,2 0.2 Lepel5Gemral 1.7 -1,7 "9,9 Zuntl1 2,4 -0,1 -2.5 MunldoR. -0] J , 4 Old MI" 4,3 -11.7 -16,2 StaroaMllfs 1,7 -1,1 . 9,6 MamcwtR. -0,6 -11,5 -13,1

mod6I. d u . 0006.04

-116 -16, ] -19

Appendix

D:

Formulas , 1/ariables Results and

r 12 G1C1 of stud the

s. oe

ding d.y,
Data
-9 W -97 -=-98 25.04.2008 28.04.2008 29.04.2008
30.04.2008 02 05 2008

p rice ' t he .
129,9 131.1 129.5 130,3 133.3 133,5 131,6 131.8 130,2 128,6

In%
0,0 0,9 "1,2 0,6 2,2 0,2 -1,5 0,2 -1,2 -1.2

AIIlwnz .
deviation
1.0 1.0 1.0. 1.0 1.0 1,0 1,0 1,0 1,0 1,0 0 O , 0.4 -0,2 -0,2 0,6 0,5 -0,3 0,1 "0,7 -0,4 0,0 1.0 1,4 2,8 7.8 0,0 2,3 0,1 0,2 0,9

B EINSUR
0,0 0,8 -1,4 1,5 2.6 . 0,3 "1,7 0,2 -0,6 "1,1

Rat0.0 0,4 -0,2 -0,2 0.6 0,5 "0,3 0,1 "0,8 -0,4

s q uared

--100

h . re . In
3 78 , 2 , 12
3 25

V olume is
1 06 .

P)
4 44 4 46 41 43 43 47 46 50 51

-98

event
method

-84 - ' -93 - -92 91

. . 05.05.2008 06 5 2008 .0 . 07.05.2008 08.05.2008 09.05.2008

. 2.75 3,93 1,30 3,28 2,26 2,79 2,65

.,

r -90
-89 1-88 "`-87 -86 -85 ^"-84 ---83 -82 "-81 -80 -79 -78 -77 -76 -75 '-74 -73 -72 '-71 '--7D "-69 '-68 -87 -66 -8 `84 "63 "-62 '-61 -60 -59 -56 -57 -56 -55 -54 "53 ' "52 -51 "50 "49 -4e -47 -46 -45 1 -44 -43 -42 -41 -40 -'- 49 -38 -37 38 -35 " "34 " . 33 -32 -31 30 -29 -28 -27 " -23 -22 -21 -20 -19 '-18 -17 `-18 - . 15 -14 -13 -12 -11 "1 -9 -8 7 -25 -24

12.05.2008
13 05.2008 14.05.2008 15.05.2008 16 05.2008 19.05.2008 20.05.2008 21.05.2008 22.05.2008 23.05.2008 26 05.2008 27.05.2008 28 05.2008 29.05.2008 30.05.2008 02.06.2008 03.06.2008 04.06.2008 05.06.2008 06.062008 09.06.2008 10.06.2008 11.06.2008 12062008 13 06 2008 16.06.2008 17.062008 18.06.2008 19.06.2008 20.06.2008 23.06,2008 24.06,2008 25,06.3008 26.062008 27.06,2008 30 06.2008 01.07.2008 02.07.2008 03.07.2008 04.07 2008 07.07,2008 08.07,2008 09.07.2008 10.07.2008 11.07,2008 14.07,2008 15 07.2008 16.07.2008 17.07,2008 16.07.2008 21.07.2008 22.07.2008 23.07.2008 24,07.2008 25.07,2008 28.07.2008 29.07.2008 30.07.2008 31.07.2008 01.08 2008 04,08,2008 05.08.2008 06 08.2008 07.082008 08 08.2008 11.08.2008 32.08.2008 13.08,2008 14.08.2008 15.08,2008 28.08.2008 19.08.2008 20.08.2008 21.08.2008 22.082008 25.08.2008 26 08,2008 27.08.2008 28.08 2008 . 0R 008 03.09.2008 02.09.2008 03 09 2008 04 09.2008 05.09.2008 08 09.2008 09.09.2008 1009.20 08 11.09.2008 12.091008 15.09.2008 16.09.2008 17.09.2008 18.09.2008 19.09 2008

129,3
129,4 129,2 128,5 329,5 129,4 129,2 126,0 119,3 119,7 118,7 117.7 120,1 110,3 122,0 119,8 118,7 117,6 117,7 115.7 114,3 113,3 112,1 112,1 116,2 117,6 118,6 117,3 118,3 117,2 116,8 115,6 118,5 115,6 112,3 111,2 108,9 109,6 110,5 110,0 110,8 110,1 112,7 112,3 108,6 109,1 102,6 99.4 106,6 109,1 111.3 110.1 115,5 114,8 107,9 107,2 105,5 108,7 109.3 108,8 108,5 112,4 113,6 111,1 111,4 113,7 113.9 110,6 110,0 110,3 109,5 106,0 105,9 104,3 106,9 109,2 109,2 109,5 112,2

0,5
0.1 . 0,2 -0.5 0,8 -0,1 Al "2.5 -5,6 0,3 -0,8 . 0,9 2.0 0,2 1,4 -1,9 "0,9 . 0,9 0,1 -1,7 -1,3 "0,9 "1,1 0,1 3,5 1,2 0,8 -1,1 0,9 -1,0 -0,4 "0,8 2,3 "2,5 "2,9 -1,0 -2.1 0,6 0,9 -0,5 0,7 -0,7 2,3 -0,4 "3,4 05 , -6 ,4 -3.2 6,8 2,3 2,0 -1,1 4,6 "0,6 "6.4 "0,6 "1,7 2,9 0,6 -0,4 -0,3 3,5 1,0 "2,3 0,3 2,0 0,2 -3,0 . 0,6 0,3 -0,7 -3,3 "0,1 -1,5 2,4 2,1 0,1 0,3 2,4 9 -0,3 1,5 "0,5 -2,3 "4,1 4,5 1,3 -2,4 -1,7 0,3 -6,8 -5,7 -0,3 -7,6 10,3

0,0
"0,2 0,2 "0,1 0,0 "0,2 -1,5 -2,2 . 1.1 -0,9 -0,3 -0,2 1,6 0,7 0,0 '0,7 0,3 "0,6 -0,2 "2,5 -0,5 "0,5 "1,7 1,6 0,9 "0,4 0,0 "1,3 "0,9 -1,6 -1,3 "0,4 1,0 "3,4 -1,4 "0,2 "2.8 0,1 1,7 -2,5 1,3 -1,3 2,4 -1,4 "3,0 1,0 "3,0 0,2 2,9 3,5 0,2 -0,2 3,6 -1.3 -4,1 . 2,0 0,1 2,4 0,0 -0,3 . 0,6 4,5 0,4 0,1 1,0 1,4 -0.3 "3,4 0,5 0,6 -0,6 "4,2 0,8 "1,5 2,8 0,0 0,0 "0,9 2,7

0.6
0,3 -0,2 "0,4 0,8 0,1 0,9 . 1,0 -4,9 I'D -0,5 -0,6 0,9 -0,1 1,5 -1,3 "0,9 -0,4 0,3 0,0 -0,8 -0,5 0,1 -0,9 3,0 1,6 0,9 -0,2 1,5 0,2 0,6 -0,5 1,7 -0,2 "2,0 -0,8 "0,3 0,7 "0,2 1,2 0,0 0,3 0,9 0,6 -1,4 0,0 d, 3 "3.2 5,0 0,1 2,0 "0,9 2,4 0,4 -3,7 0,8 -1,7 1,5 0,7 -0,2 0,2 0,7 0,8 -2,2 "0,3 1,2 0,5 -0,7 -0,6 0,0 "0,3 "0,6 -0,5 "0,4 0,7 2.2 0,1 0,9 0,8

0.0
0,0 0,2 0,0 0,0 0,0 1,7 4,1 0.8 0,5 0,0 0,0 3,8 0.7 0,0 0,2 0,2 0,2 0,0 5,3 0,1 0,1 2,2 3,1 1,3 0,1 0,0 1,1 0,4 2,0 1.3 0,0 1,5 10,1 1,4 0,0 6,6 0,1 3,7 5,2 2,2 1,3 6,7 1,5 7,6 1,3 8,0 0,1 9,7 13,6 0,1 0,0 14,6 1,3 15,4 3,4 0,1 6,6 0,0 0,0 0,2 12,2 0,3 0,1 1,5 2,6 0,0 10,3 0,5 0,7 0,2 16,0 1,0 1,8 9,0 0.0 0,0 0, 5 , 2 O1 0,0 8,5 1,0 6,1 4,3 0,0 28,2 1,1 1,5 0,5 37,9 10,4 0,6 0,8 225

1.0
1.0 1.0 1,0 1,0 1,0 1.0 1,0 1,0 1,0 1.0 1.0 1,0 1.0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1, D 1,0 1,0 1,0 1,0 3.0 1,0 1,0 1,0 1,0 1.0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,1 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0

0,6
0,3 -0,2 -0,4 0,8 0,1 0.9 -1,0 -4,6 1.0 -0,5 . 0,6 0,9 -0,1 1,4 -1,3 -0,9 -0.4 0,3 0,0 -0,8 "0,5 0,1 -0,8 3,0 1,5 0,9 -0,2 1,5 0,2 0,6 -0,5 1,7 -0,2 -1,9 -0,8 -0,3 0,7 -0,2 1,2 0,0 0,3 019 0,6 -1,4 0.0 -4,2 "3,2 4,8 0,1 2,0 "0,9 2.3 0,4 -3,5 0,7 -1,6 1,4 0,7 -0,2 0,2 0,7 0,8 -2,2 -0,3 1,2 0.5 -0,7 -0,8 0,0 "0,2 -0,5 "0,5 -0,4 0,7 2,2 0,1 0,9 O, 7

0,95
2,19 2.06 2.37 3,17 3,10 3,89 G, 04 5.19 3,43 1.22 3,27 3,87 2,01 2,52 2,44 1,60 2,40 2,70 4,03 3,11 3,60 4,26 4,87 7,34 3,65 3,40 2,69 5,46 6,92 3,34 3,76 3 38 , 3,90 4,34 3,72 4,61 3.58 4,77 2,00 2.72 4,10 2,80 3,22 4,86 2,58 9,69 8,72 8,32 5,41 3,44 2,86 5,08 3,75 9,07 2,51 3,66 2,62 2.52 2,09 1,67 3,94 3,37 5,41 3,26 2,90 2,20 3,61 2,61 2,91 1,69 4,26 3,18 2,80 3,36 3,15 4,02 3,03 5,26

50
48 47 46 44 42 44 46 67 67 67 69 59 56 55 59 61 63 65 67 71 72 67 67 64 63 61 64 67 74 73 79

74
78 31 78 81 80 61 81 80 80 74 75 72 69 73 68 62 61 58 59 55 55 57 56 56 56 58 60 61 59 80 61 51 59 59 59 57 57 57 62 61 62 57,5 57,5 59,5 61 61

'

---

'-

--

11a q
114,1 115,8 115,2 112,6 108,2 113,2 114,7 112,0 110,1 330,4 303,3 97,7 97,5 90.6 100.9

22
-0,1 2,7 . 1,2 "2,7 -2,3 0,0 5,1 "1,3 "1,4 as "6,3 "3,4 -1,0 "1,1 11,0

19
-0,1 -0,1 0,4 "0,5 "2,6 4,5 -1,9 -1,5 -0,7 0,0 "2,7 "3,5 0,4 "6,88 3: 3

10
1,0 1,0 1,0 1,0 1,0 1,0 1,1 1,0 1,0 1,0 1.1 3,0 1,0 1,0 1,2

9 '1 "0,1
-0,1 0,3 -0.5 -2,5 4,5 -1,8 -1,5 -0,7 0,0 -2,5 -3,3 0,4 -6,7 2,7

12
"0,1 "0,1 0.3 "0,5 -2,5 4,5 -1,8 -1,5 -0,7 0,0 -2,5 -3,3 0,4 -6,7 2,7 3,31 4.85 3,17 3,48 5,54 6,14 5,29 4,31 3,71 3,09 12,32 11.83 8,15 14,40 16.33 1.06 1,06 1.06 1,06 1,06 1,06 1,06 1,06 3,06 3,06 Managing 1.06 1,06 2,06 1,06 1,06

fin
60 57 59 60 63 56 60 58 58 60 81 90 90 85 75

"

'-^-8 -5 -4 -3 -2 -

-'3

243.9 S ource: Bloomberg and Goldman Sachs

Sum SARk mod. SARk supennod. f. SARk CARt

"

R mean return of BEINSUR dunng the es timation penod -0,1912698 T is the number o f days In the es umehon penod considenn 9 confou modified CARS 88 "81,1 irr 0,011364 sUpermodifl. d CARt
5 standard error 1,00868657 of the OL5 mar ket model regression -66,6

-11.9 -16.3 -19,0 , 45.1 .

325,09

square of S standard error of the OLS market model regression 1.017,408 sum of (R,,.-$ squared) 243,3 -' -

ALianz;

ARit-

Rit-("0.09+0,63

" Rmt)

361

Appendix D: Formulas, Variables, Results anc Data of the event study method

25.04.2008 28.04.2008

22,9 23,2

0,0 1,5

0,0 0,8

0,0 1,2

0,0 1,0

1,0 1,0

0,0 1,3

29.04.2008
30.04.2008 02.05.2008 05.05.2008 06.05.2008 07.05.2008

9,0 8 9,1 1

3,68

23,0
23,2 24,2 24,0 23,6 23,7

-1,1
1,2 3,9

-1,4
1,5 2,6 -0,3 -1,7 0,2

-0,3
0,5 2,7

1,4
2,8 7,8 0,0 2,3 0,1

65 61

1,0
1,0 1,0 1,0 1,0 1,0

-0,3
0,6 2.8

7,36
7 48 , 15,62 5,90 9,59 9 87 , 10,75 10,76 4,59 10,02

63
64 62 62 66 66 70 73 72 70

-0,7 -2,0 0,4

-0,4 -0,9 0,5

-0,4 -1,0 0,5

08.05.2008
09.05.2008 12.05.2008 13.05.2008

23,6
22,9 23,1 23,3

-0,4
-2.8 0,9 0,8

-0,6
-1,1 0,0 "0,2

0,0
-2,1 1,1 1,0

0,2
0,9 0,0 0,0

1,0
1.0 1,0 1,0

0,0
-2.2 1.1 1,1

14.05.2008
2.5.0s 200s . 16.05.2008 19.05.2008 20.05.2008 21.05.2008 22.05.2008

23,3
23,2 23,3 23,1 22,8 22,3 21,9

0,1
-0,6 0,5 -1,1 -1,1 -2,2 -3,9

0,2
-0,1 0,0 -0,2 -1,5 -2.2 -1,1

0,1
-0,4 0,6 "0,9 "0,2 . 0,9 . 1,3

0,2
0,0 0,0 0.0 1,7 4,1 0.8

1,0
1,0 1,0 1,0 1,0 1,0 1,0

0,1
-0,5 0,7 -0,9 -0,2 -1,0 -1,3

9,42
8 18 , 10 13 , 9 16 . 10.37 14,86 13,26

71
73 70 0 71 75 84

23.05200
26.05.2008 27.05.2008 28.05.2008 29.05.2008 30.05.2008 02.06.2008

21,7
21.5 21.3 22.0 22,2 22,3 21,6

-0,8
-1,1 .0 ,6 3,1 1,0 0,5 -3,3

"0,9
-0,3 -0,2 1,8 0,7 0,0 -0,7

-0,2
-0,8 -0,4 2,3 0,8 0,6 -2,9

0.5
0,0 0,0 3,8 0,7 0,0 0,2

1,0
1,0 1,0 1,0 1,0 1,0 1,0

-0,2
-0,8 -0,4 2,4 0,8 0,6 -3,0

9,83
4,06 9,31 14,51 9,10 30,71 11,41

92
92 102 94 91 89 92

03.06.2008
04.06.2008 05.06.2 008 06.06.2008 09.06.2008 10.06.2008 11.06.2008 12.06.2008

21,3
21,0 21,3 20,9 20,3 20,2 20,4 20.5

-1,6
-1,1 1,0 -3,9 -2,6 "0.6 0,6 0,5

0,3
-0,6 -0,2 "2,5 -0,5 "0,5 -1,7 1.6

-1,6
-0,6 1,3 . 0,4 -2,2 -0,2 1,6 -0,2

0,2
0,2 0,0 5,3 0,1 0,1 2,2 3,1

1.0
1,0 1,0 1,0 1,0 1,0 1,0 1,0

-1,6
-0,7 1,3 -0,5 -2,3 -0,2 1,6 -0,2

13,25
10.72 8,53 13,32 10,22 16,74 13,68 13,84

94
100 100 102 105 105 102 100

13.06.2008
16.06.2008

20,7
21,1

1,1
1,9

0,9
-0.4

0,8
2,2

1,3
0.1

1,0
1,0

0,8
2,4

11,59
11,15

97
96

17.06.2008
18.06.2008 19.06.2008

21,2
20,6 20,4

0.6
-2,8 -0,9

0,0
-1,3 "0.9

0,7
-2,0 -0,3

0,0
1,1 0,4

1,0
1,0 1,0

0,7
-2.1 -0,3

9,02
10,14 10,50

92
96 98

20.06.2008
23.06.2008 24 06.2008

20,2
19,8 19,5

-1,2
-2,0 -1,5

"1,6
-1,3 "0,4

-0,2
-1,2 -1,2

2,0
1,3 0.0

1,0
1,0 1,0

-0,2
-1.2 -1,2

17,63
9,95 13,04

105
104 113

25.06.2008
26.06.2008 27.06.2008

19.9
19.3 18,4

2,0
-3,3 -5,1

1,0
-3,4 -1,4

1,6
. 1,4 -4,2

1,5
10,1 1,4

1,0
1,0 1.0

1,7
-1,4 -4,4

8,75
14.59 25,57

107
112 115

30.06.2008
01.07.2008

18,3
17,7

-O, 1
-3,5

-0,2
-2,8

0,2
-1,9

0,0
6,8

1.0
1,0

0,2
-2,0

12,86
17,70

112
115

02.07.2008 03.07.2008
04.07.2008 07.07.2008 08.07.2008 09.07.2008 10.07.2008 11.07.2008 14.07.2008 15.07.2008

17,8 17,9
17,9 18,0 17,6 18.5 18,3 17,6 17,7 16,8

0,5 0,8
-0,2 0,4 -2,3 4,7 -0,9 -4,2 0,9 -5,1

0,1 1,7
-2,5 1,3 -1.3 2,4 -1,4 -3,0 1,0 -3,0

0,6 0,0
1,2 -0,1 -1,5 3,6 0,0 -2,5 0,5 . 3,4

0,1 3,7
5,2 2,2 1,3 6.7 1,5 7,6 1,3 8,0

1,0 1,0
1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0

0,6 0,0
1,3 -0,1 -1,5 3,7 0,0 -2,6 0,5 . 3,5

13,68 19,98
8,50 9,67 36,58 15,24 13,92 15,12 11,19 22,50

116 115
115 11G 117 112 117 122 120 124

16.07.2008
17.07.2008 18.07.2008 21.07.2008 22.07.2008 23.07.2008

16,4
17,8 18,3 18.7 18,4 19,5

-2,8
7,8 2.9 1,9 -1,6 5,9

0,2
2.9 3,5 0,2 -0,2 3,6

-2,7
6,4 1,2 2,0 -1,4 4,1

0.1
9,7 13,6 0,1 0,0 14,6

1,0
1,0 1,0 1,0 1.0 1,0

-2,9
6,6 1,2 2,1

21,94
22,04 19,49 11,94 11.53 18,84

122
111 110 107 108 102

-1,4 4,2

24.07.2008 25.07.2008
28.07.2008

19,6 18,3
18,0

0,5 -7,2
"1,8

-1,3 -4,1
-2,0

1,3 -4,9
-0,6

1,3 15.4
3,4

1,0 1,0
1,0

1,4 -5,0
-0,7

13,20 23,87
11,42

100 101
100

29.07.2008
30.07.2008

17,4
18.3

-3,1
4,7

0.1
2,4

-3,0
3.6

D. 1
6,6

1.0
1,0

-3,2
3,7

16,45
14,33

100
99

31.07.2008 01.08.2008
04.08.2008 05.08.2008 06.08.2008

18,5 18,4
18,3 19,2 19,8

1,1 -0,4
. 0,4 4,7 2,6

0, O .0 ,3
-0,6 4,5 0,4

1,2 -0.1
0,0 2,5 2,5

0,0 0,0
0,2 22,2 0,3

1,0 1,0
1,0 1,0 1,0

1,3 -0,1
0,0 2,5 2,7

11,72 10,83
6,80 15,55 13,92

102 305
107 104 103

07.08.2008 08.08.2008
11.08.2008 12.08.2008 13.08.2008 14.08.2008 15.08.2008 18.08.2008 19.08.2008 20.08.2008 21.08.2008

21.0 21,5
21,8 21,7 20,9 20,7 21,3 21,2 20,2 39,9 19,7

5,8 2,2
1,6 -0,5 "3,8 -0.9 2,8 . 0,6 .5 '1 -1,1 -1,1

0,1 1,0
1,4 -0,3 -3,4 0,5 0,6 -0,6 -4,2 0,8 -1.5

5,9 1,8
1,0 -0,2 -1,9 -1,0 2.6 -0,2 -2,8 -1,4 -0,2

0,1 1,5
2,6 0,0 10,3 0,5 0,7 0,2 16,0 1,0 1,8

1,0 1,0
1,0 1,0 1,0 3,0 1,0 1,0 1,0 1,0 1.0

6,1 1,9
1,0 -0,2 -1,9 -1,0 2,7 -0,2 -2,8 -1,5 -0,2

25,67 20,86
11,61 13,92 13,91 9,59 10,31 7,61 14,41 10,59 10,20

104 104
101 99 99 97 97 97 101 100 302

22,08.2008
25.08.2006

20,3
20,5

3,0
0,9

2,8
0.0

1,7
1,1

9,0
0.0

1,0
1,0

1.7
1,1

11,12
6,37

96.5
96,5

26.08.2008 27.08.2008
28.08.2008 29.08.2008 01.09.2008 02.09.2008

20,2 20,0
20,7 21,3 21,2 22.3

-1,7 -0,9
3,3 2,9

0,0 -0,9
2.7 0.2

.1 ,6 "0,3
2.0 3,0

0.0 0,5
8,2 0,1 0.0 8,5

1,0 1,0
1.0 1,0 1,0 1,0

-1,6 -0,3
2.1 3,1 -O, 6 3,9

9,33 9.15
14,91 1 97 -0.6 3,9 .: 09 24.70 3,08 3,68

98,5 102
300 99 98 94

-0,7 5,1

-0,1 2,7

"0,6 3,8

03.09.2008 04.09.2008
05.09.2008

22,3 21,8
20,9

0.1 -2,4
-4,5

-1,2 "2,7
"2,3

0,9 -0,8
"3,2

1,0 6,1
4,3

1,0 1,0
1,0

0,9 -0,9
-3,3

0,9 -0,9
-3,3

13,15 14,89
18,63

3,68 3,68
3,68

95 96
99

08.09.2008
09.09.2008

23,1
23,0

9,8
-0

0,0
5,1

10,0
-3,0

0,0
28.2

1,0
1,0

10,4
-3,0

10,4
-3,0

38,29
19.73

3,68
3,68

91
94

10.09.2008 11.09.2008
12.09.2008 15.09.2008

22,3 21,4
21,6 19,7

-3,4 -4,1
0,9

-1,3 -1,4
0,5

"2,6 "3,3
O8

1,1 1.5
05 37,9

1,0 1,0
1,0 1,0

"2,7 -3,4
0,8

-2.7 -3,4
0,8

15.64 20,91
12.93 40,30

3,68 3,68
3,68 3.68

93 93
99 127

-9,6

"6,3

"6,1

-6,0

-6,0

16.09.2008 17.09.2008
18.09.2008

19,1 20.0
19,9

-3,2 4
-0,2

-3,4 10
-1,1

-1,3 5,1
0,5

10,4 0.6
0,8

1,0 1,0
1.0

-1,3 5,3
0,6

"1,3 5,3
0,6

34,04 34,51
27,26

3,68 3. G8
3,08

145 145
130

19.09.2008

23.3

14,3

11.0

8,7

125.4 243,9

1,2 " eupermodil

7.4 Sum SARk mod. SARI SARK - CARt

7,4 56,92 8,1 1130,00 5.9.2008 -2,4 Without -9.7 without 8.9.2008

3.68

120

and 19,9.2008

Rm ean return of BEINSUR during the estimation 31.3 period -0,1912698 T Is the number of days In the estimation CARt period modified 88 -8,8 irr 0.011364 - supe 5 1Ifiad S standard error of the OLS3r(3&t model regression 0,949595 square of S standard error of the OLS market model regression 0,9017312 sum of (Rmt-Rm squared) 243.3

CARL

AppendixD: Formulas, Variables, Results and Data of the event study method

24,04.2008 25.04.2008 28,04.2008 29.04.2008 30.04.2008

28,6 29,0 28,7 28,4 28,5

0,0 1,2 -1,0 . 0,9 0,2

0,0 0,8 -1,4 1,5 2,6

0,2 1,2 -0,7 -0,9 0,0

0,0 1,0 1,4 2,8 7,8

1,7 1,7 1,7 1,7 1,7

0,1 0,7 -0,4 -0,6 0,0

5,43 4,29 7,28 5,99 11,45

1,89

49 46 44 46 46

02.05.2008
05.05.2008 06.05.2008

28,8
28,7 28,4

1,2
-0,5 -0,9

-0,3
-1,7 0,2

1,4
-O, 1 -0,8

0,0
2,3 0,1

1,7
1,7 1,7

0,8
0,0 -0,5

11,19
4,17 7,80

43
43 47

07,05.2008
08.05.2008 09.05,2008 12.05.2008 13.05.2008 14.05.2008 15.05,2008 16.05.2008 19.05,2008 20.05,2008 21.05.2008 22.05.2008 23.05.2008 26.05.2008 27.05.2008 28.05.2008 29.05,2008 30.05.2008 02.06.2008 03.06.2008 04.00,2008 05.06.2008 06.06.2008 09.06.2008 10.06.2008 11.06.2008 12.06.2008 13.06.2008 16.06.2008 17.06.2008 18.06.2008 19.06.2008 20.06.2008 23.06.2008 24.06.2008 25.06.2008

28,5
28.4 28,2 28,1 28,1 28,1 28,0 28,0 27,3 27,0 26,8 26,4 26,4 26,2 26,1 26,5 26,5 26,8 26,4 26,6 26,6 26,6 26,2 26,1 25,9 26,0 26,0 25,8 25,8 25,4 25,1 25,1 24,8 24,7 24,4 24,6

0,4
-0,6 -0,7 -0,1 0,1 -0,1 -0,3 0,0 -2,8 -1,1 -0,7 -1,4 -0,1 -0,7 -0,3 1,4 0,1 0,9 -1,3 0,6 0,1 -0,2 -1,3 -0,6 -0,6 0,2 -0,1 -0,4 -0,3 -1,6 -1,3 0,3 -1,2 -0.5 -1,2 0,8

-0,6
-1,1 0,0 -0,2 0,2 -0,1 0,0 -0,2 -1,5 -2,2 -1,1 -0,9 -0,3 -0,2 1,8 0,7 0,0 -0,7 0,3 -0,6 -0,2 -2,5 -0,5 -0,5 -1,7 1,6 0,9 -0,4 0,0 -1,3 -a, 9 -1,6 -1,3 -0,4 1,0 -3,4

0,6
-0,3 -0,6 O, 1 0,2 0,1 -0,2 0,2 -2,4 -0,7 -0,4 -1,1 0,1 -0,5 -0,4 1,5 0,3 1,2 -1,2 0,8 0,2 0,3 -1,1 -0.4 -0,2 0,2 0,0 -0,2 . 0,1 -1,2 -1,0 0,7 -0,9 -0,3 -1,2 1,4

0,2
0,9 0,0 0,0 0,2 0,0 0,0 0,0 1,7 4,1 0,6 0,5 0,0 0,0 3,8 0,7 0,0 0,2 0,2 0,2 0,0 5,3 0,1 0,1 2,2 3,1 1,3 0,3 0,0 1,1 0,4 2,0 1,3 0,0 1,5 10,1

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 3,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1.7 1,7 1,7 1,7 1,7 1,7

0,4
-0,2 -0,3 0,0 0,1 0,1 -0,1 0,1 -1,4 -0,4 -0,2 -0,7 0,1 -0,3 -0,2 0,9 0,2 0,7 -0,7 0,5 0,2 0,2 -0,7 -0,3 -0,1 0,1 0,0 -O, 1 -0,1 -0,7 -0,6 0,4 -0,5 -0,2 -0,7 0,8

7,03
8,90 8,21 8,24 14,32 10,59 7,17 8,68 5,58 7,02 8,70 11,71 8,08 4,35 10,48 12,59 4,78 5,72 4,31 4,16 4,52 3,93 6,06 4,26 4,86 5,02 4,47 4.22 5,57 9,00 6,78 4,78 10,26 4,81 6,67 4,38

46
51 51 50 48 47 46 44 42 44 48 57 65 55 69 59 56 55 58 59 53 65 69 71 72 67 67 64 63 61 64 (, 7 74 74 82 78

26.06.2008
27.06.2008 30.06.2008 01.07.2008 02.07,2008 03.07.2008 04.07.2008 07,07.2008 08.07.2008 09,07.2008 10.07.2008 11.07.2008 14.07.2008 15.07,2008 16.07.2008 17.07.2008 18.07.2008 21.07.2008

24,7
24,2 24,2 24,0 24,1 24,0 23,8 23,7 23,4 23.6 23,6 23,0 23,1 22,6 22,3 22,6 22,6 22.8

0,1
-1,7 -0,3 -0,7 0,5 -0,5 -0,8 -0,6 -1,2 0,8 0,1 -2,6 0,5 -2,3 -1,5 1,3 0,0 1,2

-1,4
-0,2 -2,8 O, 1 1,7 -2,5 1,3 -1,3 2,4 -1,4 -3,0 1,0 -3,0 0,2 2,9 3,5 0,2 -0,2

0,4
-1,5 0,2 -0,5 0,4 0,0 -0,8 -0,2 -1,3 1,1 0,6 -2,5 1,0 -2,2 -1,7 1,0 0,1 1,4

1,4
0,0 6,8 0,1 3.7 5,2 2,2 1,3 6,7 1,5 7.6 1,3 8,0 0,1 9,7 13,6 0,1 0,0

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

0,3
-0,9 0,1 -0,3 0.2 0,0 -0,5 -0.1 -0,8 0,7 0,4 -1,5 0.6 -1,3 -1,0 0,6 0,1 0.8

5,71
6,99 6,56 6,87 4,97 7,17 5,65 5,36 7,62 6,25 6,16 10,61 5,08 9,52 10,57 8,63 7,44 5,78

82
85 82 86 86 87 87 87 87 80 80 78 75 77 72 66 65 61

22.07.2008 23.07.2008
24.07.2008

22,7 23,3
23.3

-0,7 2,5
0,0

3,6 -1,3
-4,1

-1,0 2,9
0,7

14,6 1,3
15,4

1,7 1,7
1,7

-0,6 1,7
0,4

7,72 6,44
5,05

61 55
55

25,07.2008
28.07.2008

22,6
22,3

-2,8
-1,6

-2,0
0,1

-2,4
-1,5

3,4
0.1

1,7
1,7

-1,4
-0,9

12,32
7,35

57
57

29.07.2008
30.07.2008 33.07,2008 0208 2008 . 04.08,2008 05.08,2008 06.08,2008 07.08.2008 08.08.2008

22,2
22,6 22,5 22,3 22,2 22,8 22,9 23,0 22,8

-0,4
1,8 -0,3 -1,2 -0,5 2,7 0,7 0,3 -0,8

2,4
0,0 -0,3 -0,6 4,5 0,4 0.1 1,0 1,4

-0,5
2,0 -0,1 -0,9 -0,9 2,8 as 0,3 -0,8

6,6
0,0 0,0 0,2 22,2 0,3 0,1 1,5 2,6

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

-0,3
1,2 -0,1 -0,6 -0,5 1,7 0, S 0,2 -0,5

6,57
6.38 9,77 6,02 3,46 7,27 5,04 4,38 3,66

57
57 59 61 62 GO 59 62 62

11.08.2008
12.08.2008

23,2
23,2

1,6
0,1

-0,3
-3,4

1,8
0,7

0,0
10,3

1,7
1,7

1,1
0,4

4,07
3,66

60
58

13.08.2008
14.08,2008 18.08.2008

23,1
22,9 22,8

-0,7
-1,0 -0,2

0,5
0.6 -0,6

-0,6
-0,9 0,0

0,5
0,7 0,2

1,7
1,7 1,7

-0,3
-0,5 0,0

4,79
3,67 3,67

59
57 57

19.08.2008
20.08,2008 21.08.2008

22,6
22.4 22,2

-1,2
-0,6 -1,1

-4,2
0,8 -1,5

-0,4
-0,5 -0,7

16,0
1,0 1,8

1,7
1,7 1,7

-0,3
-0,3 -0,4

4,81
3,57 4,34

62
61 62

22.08.2008
25.08.2008 26.08.2008

22,4
22,4 22,2

0,7
0,0 -0,6

2,8
0,0 0,0

0,5
0,2 -0,5

9,0
0,0 0,0

1,7
1,7 1,7

0,3
0,1 -0,3

3,75
1,86 3,89

58,5
58,5 60,5

27.08.2008
28.08 29.08 2008 01.09.2008 02.09.2008

22,2
22,6 22, $ 22,7 23,1

-0,1

1,7 1, O

-0,9
2.7 0.2

0,2
1,5 1,1 -0,2 1,5

0,5
8,2 O, 1 0,0 8,5

1.7
1,7 1,7 1,7 1,7

0,1
0,9 0,7 -0,2 0,9 -0,2 0,9

3,45
5,33 37 3,31 6,79

62
62 1,89 1,89 15,1 G1 58

-0,4 1,7

-0.1 2,7

03.09.2008
04.09.2008 05.09.2008 08.09.2008 09.09.2008

23,1
22,9 22,2 22,8 22,9

0,1
-0,9 -3,2 2,4 0,5

-1,2
-2,7 -2,3 0,0 5,1

0,4
-0,4 -2,7 2,6 0,0

1,0
6,1 4,3 0,0 28,2

1,7
1,7 1,7 1,7 1,8

0,3
-0,2 -1,6 1,6 0,0

0,3
-0,2 -1,6 1,6 0,0

3,33
5,03 8,36 9,30 6.30

1,89
1,89 1,89 1,89 1.89

60
61 64 57 61

10.09.2008
11.09.2008 12 09.2008

22,7
22,6 22,5

-0,6
-0,6 1

-1,3
-1,4 0,5

-0,3
-0,2 010

1,1
1,5 0,5

1,7
1,7 1,7

-0,2
-0,1 0,0

-0,2
-0.1 010

5,61
5.32 5,20

1.89
1.89 1,89

59
59 61

15.09.2008
16.09.2008

21,7
21,2

-4.1
-2,3

-6,3
-3,4

-3,1
-1,7

37,9
10,4

1,8
1,7

11 11
-1,7
-1.0

-1,7
-1,0

15,15
14,22

1,89
1,89

85
90

17.09.2008
18.09.2008

21,4
20,9

0.8
-2,4

-1.0
-1,1

1,1
-2,1

0,6
0,8

1,7
1,7

0,7
-1,3

0,7
-113

8,25
12,77

1,89
1,89

95
85

19.09.2008

22,1

5,6

11.0

4,3

125,4 243,9

2,0

supermodit

2,1 Surn SARI, mod. SARI, SARI, CARt

2,1 24,98 580,60 -0,8 5.9.2008 -2,4 Without -4,5 without 8.9.2008

1,89

75

an d 19,9,2008

R mean return of BEINSUR during the estimation period -3,3 -0,19127 T Is the number of days In the estimation penod CARt modified 88 -9.0 irr 0,011364 d CARL sup. rmodl9. S standard error of the OLS markr3t el regression -16.3 1,649947 square of S standard error of the OLS market model regression 2,7223 squared) sum of (Rmt-Rm 243,3

Appendix D: Formulas, Variables, Results and Data of the event study method

Aviva _.
635,4
24.04.2008 25.04.2008 28.04.2008 29.04.2008 30.04.2008 01.05.2008 02.05.2008 06.05.2008 07.05.2008 08.05.2008 05>. 05 2008 . 12.05.2008 13.05.2008 14.05.2008 15.05.2008 16.05.2008 19.05.2008 20.05.2008 21.05.2008 22.05.2008 23,05.2008 27.05.2008 28,05.2008 29.05.2008 30.05.2008 02.06.2008 03.06.2008 04.06.2008 05.06.2008 06.06.2008 09.06.2008 10.06.2008 11.06.2008 12.06.2008 13.06.2008 16.06.2008 17.06.2008 18.06.2008 19.06 20.06.2008 23.06.2008 24.06.2008 25.06.2008 26.06.2008 27.06.2008 30.06.2008 01.07.2008 02.07.2008 03.07.2008 04.07.2008 07.07.2008 08.07.2008 09.07.2008 10.07.2008 11.07.2008 14.07.2008 15.07.2008 16.07.2008 17.07.2008 18.07.2008 21.07.2008 22.07.2008 23.07.2008 24.07.2008 25.07.2008 28.07.2008 29.07.2008 30.07.2008 3 1.07.2008 01.08.2008 04.08.2008 05.08.2008 06.08.2008 07.08.2008 08.08.2008 11.08.2008 12.08.2008 13.08.2008 14.08.2008 15.08.2008 18.08.2008 19.08.2008 20.08.2008 21.08.2008 22.08.2008 26.08.2008 27.08.2008 28.08.2008 623,3 623,9

. _.
15,40
11,86 8,07

0,0
-2,0 0,1

0,0
0,8 -1,4

0,0
-1,8 0,3

0,0
1,0 1,4

1,7
1.7 1,7

0,0
-1,1 0,2

3,06

635,7
623,7

1,9
-1,9

1,5
2,6

2,0
-1,8

2,8
7.8

1,7
1,7

1,2
-1,1

4,71
7,42

628,3
628,4 656,6 653,1 649,4 642,6 635,3 637,9 634,8 643,8 634,1 647,8 646,5

0,7
0,0 4,3 -0,5 -0,6 -1,1 -1,1 0,4 -0,5 1,4 -1,5 2,1 -0,2

-0,3
-1,7 0,2 -0,6 -1,1 0,0 -0.2 0,2 -0,1 0,0 -0,2 -1,5 -2,2

0,9
0,2 4,5 -0,3 -0,4 -0,9 -1,0 0.6 -0,3 1,6 -1,3 2,3 0,0

0,0
2,3 0,3 0,2 0,9 0,0 0,0 0,2 0,0 0,0 0.0 1,7 4,1

1,7
1,7 1,7 1,7 1,7 1,7 1.7 1,7 1,7 1.7 1,7 1,7 1,7

0,6
0.1 2,7 -0,2 -0,2 -0,5 -0,6 0,3 -0,2 1.0 . 0,8 1,4 O, O

7,59
2,55 12,97 7,31 8.29 7,97 5,60 4,16 7,49 9,50 6,25 10,70 4,81 81 82 81 82

82

633,3
610,7 605,2 616,5 608,7 621,9 626,8 636,9 620,9 623,1 619,9 618,0 615,1 601,0 588,1 577,0

-2,1
-3,7 -0,9 1,8 -1,3 2,1 0,8 1,6 -2,6 0,4 -0,5 -0,3 -0,5 -2,3 -2,2 -1,9

-1,1
-0,9 -0,3 -0,2 1,8 0,7 0,0 -0,7 0,3 -0.6 -0,2 -2,5 -0,5 -0,5 -1,7 1,6

. 1,9
-3,5 -0,7 2,0 -3,2 2,3 1,0 1,8 -2,4 0,6 -0,3 0,0 -0,3 -2,1 -2,0 -1,8

0,8
0,5 0,0 0,0 3,8 0,7 0,0 0,2 0,2 0,2 0,0 5,3 0,1 011 2,2 3,1

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

-1,1
-2,1 -0,4 1,2 -0,7 1,4 0,6 1,1 -1,4 0,3 -0,2 O, 0 -0,2 -1,3 -1,2 -1,1

10,82
11,35 9,80 9,08 7,71 9,38 8,43 9,86 7,41 5.87 7,67 8,00 11,62 7,80 8,01 13,97 84 94 201 107 99 97 94 97 99 107 108 110 113 113 108 107 102 101 96 101 103 112 111 120 115 120 126 121 125 124 127 127 126 127 121 122 123 120 124 121 110

587,4
585,5 588,2 590,2 574,9 566,4 555,7

1,8
-0,3 0,5 0,3 -2,7 -1,5 -1,9

0,9
-0.4 0,0 -1,3 -0,9 -1,6 -1,3

1,9
-0,1 0,6 0,5 -2,4 -1,3 . 1,7

1,3
0,1 0,0 1,1 0,4 2,0 3,3

1,7
1,7 1,7 1,7 1,7 1,7 1,7

1,2
-0,1 0.4 0,3 -1,5 -0.8 -1,0

9,32
7,33 7,82 8.91 8.09 10,10 11,89

545,1
533,2 530,7

-1,9
-2,2 -0,5

-0.4
1,0 -3,4

-1,8
-2,1 -0.2

0,0
1,5 10,1

1,7
1,7 1,7

-1,1
-1,2 -0.3

9,98
10,22 7, G3

515,0
503,9 498,8 482,0 492.9 495,9 489,5 492,0 491,3

-3,0
-2,2 -3,0 -3,5 2,2 0,6 -1,3 0,5 -0,2

-1,4
-0,2 -2,8 0,1 1,7 -2,5 1,3 -1,3 2,4

-2,8
-2,0 -0,8 -3,3 2,3 0,8 -1,2 0,7 0,0

1,4
0,0 6,8 0,1 3.7 5,2 2,2 1,3 6,7

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

-1,7
-1,2 -0.5 -2,0 1,4 0,5 -0,7 0,4 0,0

9, G3
11,84 13,26 19,55 16,01 16,96 8,23 10,05 10,90

516,1
503,1 494,6 498,9 478,5 4757 504,1 525,4 S21 529,4 521,7

4,8
-2,6 -1,7 0,9 -4,3 -0,6 5,6 4,0

-1,4
-3,0 1,0 -3,0 0,2 2,9 3,5 0,2 -0,2

5,0
-2,3 -1,6 1,1 -4,1 -0,5 5,7 4,2 -0.6

1,5
7,6 1,3 8,0 0,1 9,7 13,6 0,1 0.0

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

3,0
-3,4 -0,9 0,7 -2,5 -0,3 3,3 2,5 -0,3

11,52
10,75 12,14 9,01 12.06 17,09 15,47 34,15 16,00

,4

-0,8

504,9

-3,3
4,6 -1,5

3,6
-1,3 -4,1

-3,2
4,8 -1,2

14,6
1,3 15,4

1,7
1,7 1,7

-1,9
2,9 -0,7

10,82
11,57 9,89

486,7
475,5 468,7

-7,2
-2,4 -1.4

-2,0
0,1 2,4

-6,9
-2,2 -1,3

3,4
0.1 6,6

1,7
1,7 1,7

-4,1
-1.3 -0,8

20.91
9,98 13,65

10 10
101 103 107 109 305 104 106 107 104 102 103 102 102 102 lOG 104 105 995

500,2
500.9

6,3
0,1

0,0
-0,3

6,5
0,3

O,0
0,0

1,7
1,7

3,9
0,2

20,98
15,67

502,6 494,8 522,4 517,0

517,6

0,3 -1,6 5,3 .1 ,0 0,1 1,6 2,8 1,3 -4,0 O, 0

1,2

-0,6 4,5 0,4 0,1

1,0

0,5 -1,5 5,4 -0,9

0,3

0,2 22,2 0,3 0,1

1,5

1,7 1,7 1,7 1.7

1,7

0,3 -0,9 3,3 -0,5

0,2

8,19 8.96 14,36 14,66

11,87

526,1 541,2 548,2 526,9 526,9

533,5

1,4 -0,3 -3.4 0,5 0,6

-0,6

1,7 3,0 1,6 -3,9 0,2

1,4

2,6 0,0 10,3 0,5 0,7

0,2

1,7 1.7 1,7 1,7 1,7

1,7

1,0 1,8 0,9 -2,3 0,1

0,9

12,40 9,67 9,32 16,49 7,85

9,12

526,1 498,6 497,0 483,1

499,1 498,5 499,5 516,0 5108 520,4

-1,4 -5,5 -0,3 -2,9

3,2 -O, 1 0,2 3,2 -0,2 1,1

-4,2 0,8 -1,5 2,8

0,0 O, 0 -0,9 2.7 0.2 -O, 1

-1,1 -5,4 -0,1 -2,8

3,4 0,1 0,4 3,3 0.0 1,3

16,0 1,0 1,8 9,0

0.0 0,0 0,5 8,2 0.1 0,0

1.7 1,7 1,7 1,7

1,7 1.7 1,7 1,7 1,7 1,7

-0,6 -3,2 0,0 -1,6

2,0 0,0 0.2 1,9 0,0 0.8

4,67 10,59 8.99 12,98

9,28 G. 85 6,38 6.03 18,04 0,8 6,24 3,06

101,, 5 105

02.09.2008 03.09.2008 04.09.2008 05 09 2008 . . 08.09.2008 09.09.2008 10.09.2008 11.09.2008

538,8
531,3 525,7

3,4
-1,4

2,7
-1,2 -2,7

3,5
. 1,2 -O, 8

as
1,0 6,1

1,7
1,7 1,7

2,1
-0,7 -0,5

2,1
-0,7 -0,5

8,56
11,93 10,95

3,06
3,06 3,06

501,6
532,0 547,4

-4,8
5,7 2,8

-2,3
0,0 5,1

-4,6
5.9 2,6

4,3
0,0 28,2

1,7
1,7 1,8

-2,7
3,5 3,6

-2,7
3.5 1.6

12,25
6.63 13,64

3,06
3,06 3,05

538,4
528,4 532 3

-1,7
-1.9 0,7

-1,3
-1.4 0,5

-1,5
-1.7 0,9

1,1
1,5 0,5

1,7
1,7 1,7

-0,9
-1.0 0,5

-0,9
-1.0 0,5

11,01
7.22 11,25

3,066
3,06 3 06

15.09.2008 200 26.0 2617'C'9 9.2008 18.09.2008 19.09.2008

494,4 463,1
469,9

-7,7 -6,7
1,4

-6,3 -3,4
-1,0

-7,3 "6,5
1,6

37,9 10,4
0,6

1,8 1,7
1,7

-4,1 -3,8
1,0

-4,1 -3,8
1,0

21,11 25,60
18.90

3,05 3,066
3,06

478,0 567,0

1,7 15,7

-1,2 11,0

1,9 35,5

0,8 125,4 243.9

1,7 2.0

supermodit

1,1 7,6 Sum SARK mod. SARI SARk

CARt

3,1 28,63 7.66 36,24 4,6 937,53 1.0 With out 5.9.2008 -0,0 without 8.9.2008

3,06 3,06

an d 19.0.2008

R mean return of BEINSUR during the estimation 17,8 period -0,19127 T Is the number of days In the estimation d CARt period modl6. 88 3,9 1 /T 0.011364 d CARt a6p. rmodl6. S standard error of the OLS markeG64 7 re. ressIon -23 , 1 853157 , sq uare of S standard error of the OLS market model regression 2.7329 su m of (Rmt-Rm squared) 243,3

Appendix D: Formulas,
Variables , Results Data and of the study

Date
4.2008 28.04.2008 29.04.2008 30.04.2008 02.05.2008 05.05.2008 06,05.2008 07 052008 . 08.05.2008 09.05.2008 12.05 2008 13.05.2008 14.05.2008 15,05.2008 16.05.2008 19.05.2008 20.05.2008 21.05.2008 22.05.2008 23.05.2008 26.05.2008 27.05.2008 28.05.2008 29.05.2008 30.05.2008 02.06.2008 03.06.2008 04.06.2008 05.06.2008 06.06.2008 09.06.2008 10.06.2008 11.06.2008 12.06.2008 25.0

share pr ice on th e '

18.4 18,7 18,6 18.7 19,3 19,2 19,0 19,3 19,0 18,7 18,9 18,9 19,4 19,7 19,7 19,6 19,5 19,1 18,8 18,6 18,5 18,3 18,7 18,6 18,9 18,6 18,4 18,3 18,6 18,1 17,6 17,3 17,2 17,3

c hange In % har.
O, 0 1,7 -0,8 0,8 2,9 -0,3 -1,2 1,3 -1,2 -2,0 1,1 0,0 2,6 1,9 -0,4 -0,3 -0,5 -2,0 -1,6 -1,0 -0,8 -1,0 2,3 -0,7 1,6 -1,7 -O, 8 -0,4 1,5 -3,0 -3,0 -1,3 -0,5 0,1

P"

Pchange %

AR,, In A bnormal Return

O, O 0,8 -1,4 1.5 2,6 -0,3 -1,7 0,2 -0,6 -1,1 0,0 -0,2 0,2 -0,1 0,0 -0,2 -1,5 -2,2 -1,1 . 0,9 -0,3 -0,2 1,8 0,7 0,0 -O, 7 0,3 -0,6 -0,2 -2,5 -0,5 -0.5 -1,7 1,6 0,0 1,3 0,1 0,1 1,6 0,0 -0,1 1,3 -0,7 -1,3 1,3 0,2 2,6 2,1 -0,4 -0,1 0,5 -0,6 -0,9 -0,4 -0,5 -0,8 1,2 -1,0 1.7 -1,2 -0,9 0,0 1,7 -1,5 -2,6 -0,9 0,5 -0,7

Pmoon Return

INC.
-S D,, t. ndard dev iatin1
0,0 1,0 1,4 2.8 7,8 0,0 2,3 0,1 0,2 0,9 0,0 0,0 0,2 0,0 0,0 0.0 1,7 4,1 0,8 0,5 0,0 0.0 3,8 0,7 0,0 0,2 0,2 0,2 0.0 5,3 0,1 0,1 2,2 3,1 ,1 1,1 1,1 1.1 1,1 1,1 1.1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1.1 1,1 1.1 1,1 1,1 1,1 1,1 1.1 1,1

S AR
"

AR

S um SAR

V olumon haree

ot In

M InIm v olume Is
5 62 ,

6 Y C6 fbP)
70 65 67 71 56 56 58 59 59 60 60 60 60 59 59 59 56 53 60 63 63 64 59 55 5 3 53 53 58 58 as 65 66 64 65

0.0 1,2 0,1 0.1 1,4 0,0 -0.1 1,2 -0,7 -1,1 1,1 0,2 2,3 1,9 -0,3 -0,1 0,4 -0,6 -0,8 -0,4 -0,4 -0,7 1,1 -0,9 1,5 -1,1 -0,8 0,0 1,5 -1,4 -2,3 -O, 8 0,4 -0,6

event method

18.02 15,12 15 29 , 13 06 , 20 50 , 5 88 , 14,22 18 , 11 , 15 , 49 , 69 , 25 35 , 18 78 , 26 11 , 9 32 , 20 64 , 18 33 , 15 55 , 14 54 , 4 41 , 13 51 , 16,52 11,41 12 91 , 12 95 , 14 45 , 15 61 , 14 37 , 26 49 . 18 18 , 20 11 , 23 90 , 26 18 , 13 58 , 15 50 , 14 71 . 15 30 , 19 35 , 36 41 , 18 38 , 29 66 , 19 06 , 28 23 , 22 61 , 22 79 , 30 98 , 23 36 , 27,27 11,56 13,66 22,66 18,86 23,15 27,10 18 71 . 36 66 , 31,40 28,18 27,62 26,02 23,00 13 16 18 8 12

13.06.2008
16.06.2008 17.06.2008

17,4
17,7 17,8

1,1
1,4 0,8

0,9
-0,4 0,0

0,6
1,7 0,9

1,3
0,1 0,0

1,1
1,1 1,1

0,6
1.6 0,8

63
59 59

18.06.2008
19.06.2008 20.06.2008 23.06.2008 24.06.2008 25.06.2008 26.06.2008 27.06.2008 30.06.2008 01.07.2008 02.07.2008 03.07.2008 04.07.2008 07.07.2008 08.07.2008 09.07.2008 10.07.2008 11.07.2008 14.07.2008 15.07.2008 16.07.2008 17.07.2008 18.07.2008 21.07.2008 22.07.2008

17,3
17,0 16,5 16.3 16,3 16,7 16,0 15,6 15,4 15,1 15,4 15,5 15,4 15,4 15,1 15,7 15,5 15,0 14,9 14,2 14,1 15,1 15,5 16,3 16,1

-2,9
-1,8 -2,9 -1,2 0,0 2,3 -4,2 -2,6 -1,7 -1,9 1,9 0,8 -0,6 0,0 -2.2 4,0 -1,5 -3,2 -0,5 -5,2 -0,7 6,8 2,7 4,7 -1,6

-1,3
-0,9 -1,6 -1,3 -0,4 1,0 -3,4 -1,4 -0,2 -2,8 0,1 1,7 -2,5 1,3 -1,3 2,4 -1,4 -3,0 1,0 -3,0 0,2 2,9 3,5 0,2 -0,2

-2,1
-1,2 -1,9 -0,4 0,3 1,8 -2,3 -1,7 -1,5 -0,2 2,0 -0,1 0,9 -0,7 -1,4 2,8 -0,6 -1,5 -0,9 -3,4 -0,7 5,3 0,8 4,7 -1,4

1,1
0,4 2,0 1,3 0,0 1,5 10,1 1,4 0,0 6,6 0,1 3,7 5,2 2,2 1,3 6,7 1,5 7,6 1,3 8,0 0,1 9,7 13,6 O, 1 O, 0

1,1
1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1

-1,9
-1,1 -1,7 -0,3 0,3 1,6 -2,0 -1,5 -1,3 -0,2 1,8 -0,1 0,8 -0,6 -1,2 2,5 -0,5 -1,3 -0,8 -3,0 -0,6 4,6 0,7 4,2 -1,3

61
61 71 72 80 73 78 BG 85 87 84 85 85 85 87 83 83 as 80 85 90 80 BO 77 77

23.07.2008
24.07.2008 25.07.2008 28.07.2008 29.07.2008 30.07.2008 31.07.2008 01.08.2006

16,9
16,9 16,0 15,9 15,5 16,0 16,1 16,2

4,8
0,1 -5,5 -0,8 . 2,2 3,0 0,5 0,4

3,6
-1,3 -4,1 -2,0 0,1 2,4 0,0 -0,3

2,9
0,9 -3,1 0,4 -2.2 1,8 0,6 0,7

14,6
1.3 15,4 3,4 0,1 6,6 0,0 0,0

1.2
1,1 1,2 1,1 1,1 1,1 1,1 1,1

2,5
0,8 -2,7 0.4 -2,0 1,6 0,5 0,6

21,08
19,92 30,54 16,52 20,08 22,36 23,55 17,75

72
72 73 73 73 73 76 78

04.08.2008
05.08.2008 06.08.2008 07.08.2008 08.08.2008 11.08.2008 12.08.2008 13.08.2008 14.08.2008 15.08.2008 18.08.2008 19.08.2008 20.08.2008 21,08.2008

16,3
16,7 17,1 17,1 17,0 17,3 17,6 17,5 16,8 16,9 16,9 16,2 15,9 15,7

0,7
2,6 2,4 O, 1 -1,2 2,1 1,4 -0,2 -4,6 0,8 -0,2 -4,2 -1,7 -1,5

-0,6
4,5 0,4 0,1 1,0 1,4

1,2
0,2 2,3 0,2 -1,6 1,4 1,7 1.8 -4,8 0,6 0,3 -1,8 -2.1 -0,6

0,2
22,2 0,3 0,1 1,5 2,6 0,0 10,3 0,5 0,7 0,2 16,0 1,0 1,8

1,1
1,2 1,1 1,1 1,1 1,1 1,1 1,1 1,1 111 1,1 1,2 1,1 1,1

1,1
0,1 2,1 0,2 -1,5 1,3 1,5 1.6 -4,3 0,5 0,2 -1,6 -1,9 -0,5

18,24
21,25 21 40 , 19,79 18,72 13,59 19,48 29,28 21,66 17.84 11.90 25,86 16,40 15,52

81
80 80 81 81 79 79 79 79 79 78 85 85 92

-0,3 -3,4 0,5 0,6 -0,6 -4,2 0,8 -1,5

22.08.2008
25.08.2008 26.08.2008 27.0820013 28.08.2008 2 08.2008 01.09.2008 02.09.2008 03.09,2008 04.09.2008 05.09.2008 08.09.2008 09.09.2008 10.09.2008 11.09.2008 12.09.20O 15.09.2008 16.09.2008 17.09.2008 18.09.2008 19.09.2008

16,0
16,1 15,9 16,0 16.2 16.4 16,5 16,9 16,8 16,4 15,8 16,9 16,9 16,5 16.0 16,3 15,4 14.1 14,0 13,2 15,0

2,2
0,4 -1,2 0,3 1,8 1,1 0,2 2,6 -0,7 -2,5 -3,4 6,1 0,4 -2,3 -3.1 ], 7 -6,0 . 8,9 -1,1 -6,1 12,0

2,8
0,0 0,0 -0,9 2,7 0.2 -0,1 2,7 -1,2 -2,7 -2,3 0,0 5,1 -1,3 -1,4 n. 5 -6.3 -3.4 -1,0 -1,1 11,0

0,7
0,6 -1,2 0,9 0,4 1,2 0,3 1,1 0,1 -0,9 -2,0 6,2 -2,4 -1,5 -2,2

9,0
0,0 0,0 0,5 8,2 all 0,0 8,5 1,0 6,1 4,3 0,0 28,2 1,1 1,5 0,5 _ 37,9 10,4 0,6 0,8 125,4

1,1
1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,2 1,1 1,1 1,1 1,2 1,1 1,1 1,1 1.4

0,6
0,5 -1,0 0,6 0,3 1,0 0,3 1,0 0,1 -0,8 -1,8 5,5 -2,0 -1,4 -1,9 1.3 -2,0 -6,1 -0,4 -4,8 4.3

13,97
6,17 20 98 , 10,19 18,47 0,3 1,0 0,1 -0,8 -1,6 5,5 -2,0 -1,4 -1,9 1.3 -2,0 -6,1 -0,4 -4,8 4.3 14 37 . 8,11 22,13 12,10 20,33 25,54 40,93 22,24 21,59 24,75 20.24 47,74 70,85 57,03 41.64 80.36 5 62 , 5 62 , 5 62 , 5 62 , 5 62 , 5 62 , 5 62 , 5 62 , 5 62 , cI 5 62 , 5 62 , 5 62 , 5 62 , 5,62

91
91 93 93 93 1 91 88 88 90 93 85 90 90 90 e 115 130 140 140 130

-2,4 . 6,9 -0,5 -5,4 5,9

243.9 supermodu

Sum SARIt mod. SARI SARk

CARL R mean return of BEINSUR during the esbmation period -33 ,7 -0,19127 T is the number of days In the estimation period CARt modified 88 -53 .2 1/T 0,011384 SUp"rmodiflod 5I S standard error of the OLS markets repression 6 -66 , 1,111773 square of S standard error of the OLS market model regression 1,2360 sum of (Rmt-Rm squared) 243,3

-8,7 -14,2 -18,5

1722,95 Without 5.9.2008 Without 8.9.2008

an d 19.9.2008

CARt

Appendix D: Formulas, Variables, Results and Data of the event study method

AEGON

25.04.2008 28.04.2008 29.04.2008 30,04,2008 02.05.2008 05.05.2008 06.05.2008 07.05.2008 08.05.2008 09.05.2008 12.05.2008 13.05.2008 14.05.2008 15.05.2008 16.05.2008 19.05.2008 20.05.2008 21.05.2008 22.05.2008 23.05.2008 26 05.2008 27.05.2008

10,1 10,2 10,1 10,2 10,6 10,7 10,4 10,2 10,2 10,1 10,1 10,1 10,1 30,1 10,2 10,1 10,0 9,9 9,7 9.6 9,5 9,5

0,0 16 -0,8 0,5 3,9 0,4 -2,9 -1,3 -0,1 -1,2 0,5 -0,3 -0,2 0,2 1,3 -1,1 -0,9 -1,6 -2,0 -0,5 -1,4 -0,4

0,0 0,8 -1,4 1,5 2,6 -0,3 -1,7 0,2 -0,6 -1,1 0,0 -0,2 0,2 -0,1 0,0 -0,2 -1,5 -2,2 -1,1 -0,9 -0,3 -0,2

0,0 1,3 -0,1 -0,2 2,6 0,6 -2,0 -1.4 0,3 -0,5 0,5 -0,2 -0,2 0,3 1,3 -0,9 -O, 1 -0,4 -1,4 0,0 -1,2 -0,2

0,0 1,0 1,4 2,8 7,8 0,0 2,3 0,1 0,2 0,9 0,0 0,0 0,2 0,0 0,0 0,0 1,7 4,1 0,8 0,5 0,0 0,0

1,1 1,1 1,1 1,1 1,2 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1,1 1.1 1,1 1,1 1.1 1.1 1,1 1,1 1,1

0,0 1,1 0,0 -0,2 2,2 0,6 . 1,8 -1,2 0,3 -0,5 0,5 -0,1 -0,2 0,3 1,2 -0,8 -0,1 -0,4 -1,3 0,0 -1,0 -0,2

11,56 11,40 7,95 10,44 14,02 6,33 17,34 17.82 11,50 15,67 6,75 9,95 9,63 8,99 10,61 6,85 6,60 11,85 10,50 9,04 3,87 8,17

3,93

116 111 115 120 100 100 107 116 120 119 117 115 115 111 109 105 104 107 119 127 127 129

28.05.2008
29.05.2008 30.05.2008 02.06.2008 03.06.2008 04.06.2008

9,7
9,7 9,9 10,0 9,8 9,6

2,6
-0,1 1,3 1,4 -1,5 -2,3

1,6
0,7 0,0 -0,7 0,3 -0,6

1,8
-D, 3 1,3 1,8

3,8
0,7 0,0 0,2 0,2 0,2

1,1
1,1 1,1 1,1 1,1 1,1

3,6
-0,3 1,1 1,6 -1.4 -1,7

12,05
8,46 9,85 17,63 9,60 13,68

119
114 108 111 114 120

-1,9

05.06.2008
06.06.2008 09.06.2008 10,06.2008 11.06.2008

9,6
9.4 9,1 9,0 9,1

0,2
-2,6 -2,9 -1,3 1,4

-0,2
-2,5 -0,5 -0,5 . 1,7

0,3
-1,3 -2,6 -1,0 2,3

0,0
5,3 0,1 0,1 2,2

1,1
1,1 1,1 1,1 1,1

0,3
-1,1 -2,3 -0,9 2,0

11,53
15,13 9,99 12,63 16.43

121
127 124 125 120

12.06.2008
13.06.2008 16.06.2008 17.06.2008 18.06.2008 19.06.2008 20.06.2008 23.06.2008 24,06.2008 25.06.2008 26.06.2008 27.06.2008 30.06.2008 01.07.2008 02.07.2008 03.07.2008 04.07.2008 07.07.2008 08.07.2008 09.07.2008 10.07.2008 12.07.2008 14.07.2008 15.07.2008 16.07.2008 17.07.2008 18.07.2008 21.07.2008 22.07.2008 23.07.2008 24.07.2008 25.07.2008 28,07.2008

9,2
9,3 9,3 9,3 9,0 8, B 8,6 8,4 8,3 8,5 8,5 8,3 8,4 8.1 8,2 8,2 8,2 8,1 7,9 8,2 8,1 7,9 7,9 7,4 7,3 7,8 8,0 8,2 7,9 8,2 8,2 7,7 7,4

0,7
0,7 0,1 0,3 -3,1 -2,9 -2,5 -1,9 -1,4 3,0 -0,3 -1,9 0,6 -3,3 0,7 0,7 -0,9 -0,3 -3,1 3,8 -1.2 -3,0 0,0 -6,2 -1,2 5,6 2,5 2,8 -3,8 4,2 -0,2 -7,1 -3,5

1,6
0.9 -0,4 0,0 -1,3 -0,9 -1,6 -1,3 -0,4 1,0 -3,4 -1,4 . 0,2 -2,8 0,1 1.7 -2.5 1,3 -1,3 2,4 . 1,4 -3,0 1,0 -3,0 0,2 2,9 3,5 0,2 -0,2 3.6 -1,3 -4,1 -2,0

-O, 1
0,2 0,3 0,4

3,1
1,3 0,1 0,0 1,1 0,4 2,0 1,3 0,0 3,5 10,1 1,4 0,0 6,8 0,3 3,7 5,2 2,2 1,3 6,7 1,5 7,6 1,3 8.0 0,1 97 13,6 0,1 0,0 14,6 1,3 15,4 3,4

1,1
1,1 1,1 1,1 1,1 1,1 1,3 1,1 1,1 1,1 1,2 1,1 1,1 1,1 1,1 1,1 3,1 1,1 1,1 1,1 1,1 1,2 1,1 1,2 1,1 1,2 1,2 1,1 1,1 1,2 1,1 1,2 1,1

-O, 1
0,2 0,3 0,3 -2,1 -2,2 -1,4 -1,0 -1.0 2,2 1,2 -1,0 0,7 -1 0.7 -0,1 0,4 -0,8 -2,1 2,3 -0,4 -1,3 -0,4 -4,0 -1,1 3,6 0,6 2,4 -3,2 2,0 0,5 -4,3 -2,2

34,01
8,32 9,90 9,86 9,74 18,73 19,99 13,24 15,16 9,57 28,36 20,05 37,71 2067 , 13,49 16,43 7.51 9,59 15,65 12,29 9,90 15,31 12,04 29,07 21,07 16,34 19,40 12,02 17,70 18,25 11,17 21.41 14,98

116
Ill 110 100 104 107 319 118 130 123 129 135 129 136 136 140 140 139 145 137 139 138 136 142 138 130 129 124 125 118 117 118 118

-2,4 -2,5 -1,6 -1,2 -1,2 2, S 1,4 -1,2 0,7 -1,8 0,8 -0,2 0,4 -0,9 -2,4 2,6 -0,4 -1,4 -0,4 -4,6 -1,2 4,2 0,7 2,7 -3,7 2,4 0,5 -5,0 -2,5

29.07.2008 30.07.2008
31.07.2008 01.08.2008 04.08.2008 05.08.2008 06,08.2008 07.08.2008

7,3 7,5
7,5 7,5 7,6 8,0 8,2 7.7

-2,2 2,6
0,6 0,2 1,7 4,3 2,5 -6,0

0,1 2,4
0,0 . 0,3 -0,6 4,5 0,4 0,1

-2,2 1,5
0,7 0,4 2,1 2,1 2,3 -6,0

0,1 6,6
O, 0 0,0 0,2 22,2 0,3 0,1

1,1 1,1
1,1 1,1 3,1 1,2 1,1 1,1

-2,0 1,3
0,6 0,4 1,8 1,7 2,0 -5,3

15,40 15,02
14,82 10,50 12,81 15,60 14,10 30,42

120 121
123 129 133 129 128 132

08.08.2008
11.08.2008 12.08.2008

7,6
8,0 8.3

-1,7
5,5 2,8

1,0
1,4 .0 ,3

-2,2
4,8 3,0

1,5
2,6 O, 0

1,1
1,1 1,1

-1,9
4,2 2,7

21,36
24,36 17,30

134
131 129

13.08.2008
14.08.2008 15.08.2008

8,1
8.1 8,2

-2,3
-0,2 1,8

-3,4
0,5 0.6

-0,6
-0,5 1.5

10,3
0,5 0,7

1,2
1,1 1,1

-0,5
-0,4 1,3

15,70
14.72 11,40

131
130 130

18.08.2008
19.08.2008 20.08.2008 21,08.2008 22.08.2008 25.08.2008 26.08.2008 27.08.2008 28.08.2008 29 08 2008 01.09.2008 02.09.2008 03.09.2008 04.09.2008 05.09.2008 08.09.2008 09.09.2008 10.09.2008

8,1
7,9 7,8 7,7 7,9 7,9 7,8 7,8 8,0 1 8,1 B, 4 8,3 8,2 7,9 as 8,6 8,5

-0,9
-3,4 -1,0 -1,1 2,5 0,1 -1,2 -0,3 2,1 1,6 -0,1 3,9 -0,6 -1,7 -3,7 6,4 2,3 -1,5

-0,6
-4,2 0,8 -3,5 2,8 0,0 0,0 -0.9 2,7 0.2 -0,1 2,7 -1,2 -2,7 -2,3 0,0 5,1 -1,3

-0,5
-1,2 -1,4 -0,3 1,1 0,2 -1.2 0,2 0.8 1,5 0,0 2,5 0,1 -0,3 -2,5 6,4 -0,3 -0,8 2.0 r., r . n..., . "" -7,5 -4,7 -2,8 -5,6

0,2
16,0 1,0 1.8 9,0 0,0 0,0 0,5 8,2 0.1 0,0 8,5 1,0 6,1 4,3 0,0 28,2 1,1

1,1
1,2 1,1 1,1 1,2 1,1 1.1 1.1 1,2 1,1 1,1 1,2 1,1 1,1 1,1 1,1 1,2 1,1

-0,5
-1,1 -1,2 -0,2 1,0 0,2 -1,0 0,2 0,7 1,4 0,0 2,2 0,0 -0,2 -2,2 5,7 -0,2 -0,7 0.0 2,2 0,0 -0,2 -2,2 5,7 -0,2 -0,7

7,17
11,28 8,33 7,93 7,81 3,46 6,38 6,74 9,81 9 36 6,15 15,26 8,74 12,75 13,33 18,45 19,53 11,27

130
136 136 241 235,5 135,5 137,5 143 143 141 3,93 3,93 3,93 3,93 3,93 3,93 3.93 3,93 341 137 141 145 148 140 152 355

11.09.2008
1209.7908 `,,. _.. 15.09.2008 16.09.2008 17.09.2008 18.09.2008 , .. ,., .-^.

8,3
5 c 7,6 7,2 6,9 6,5

-3,0
2.2

-1,4
05 . FTa: ^j,,...,, T 6,3 -3,4 -1,0 -1,1

-2

1,5
0.5 37,9 10,4 0,6 0,8

1,1
t, 1 1,2 1,2 1,1 1,1

-2,0
1,7 6,1 -4,1 -2,4 -5,0

-2,0
1 ,7 6,1 -4,1 -2,4 -5,0

12,88
12 94

3,93
393 3,93 3,93 3,93 3,93

159
161 198 238 240 219

-10,7 -6,5 -3,3 -6,3

37,40 31,03 31,13 25,85

19.09.2008

7,5

12,4

11,0

6,8

125,4 243,9

1,4

supermodd

4,9 Sum SARk mod. SARI, SARk CARt period

4,9 44,27 1204,52 -8,4 -, 4,1 With out 5.9.2008 -19,0 without 8.9.2008 -32,6

3,93

200

and 19.9.2008

R mean return of BEINSUR during the estimation -0,19127 T Is the number of days in the estimation period

modlfl"d

CARt

0,011364 S standard error of the OLS market model regression 1.127421 square of S stand ard error of the OLS market model 1,2711 sum of (Rmt-Rm squared)

66

366

-52.7 supermodlfied
-68,3 regression

CARt

Appendix D: Formulas, Variables, Results and Data of the event study method
'

GNP Assurances

25.04.2008

71,5032

0,0

1,3

0, O

0,32

0,08

N/A

28.04.2008 29.04.2008
30.04.2008 02.05.2008 05.05.2008 05.05.2008 07.05.2008 08.05.2008 09.05.2008 12.05.2008 13.05.2008 14.05.2008 is 05.2008 . 16.05.2008 19.05.2008 20.05.2008 21.05.2008 22.05.2008 23.05.2008 26.05.2008 27.05.2008 28.05.2008 29.05.2008 30.05.2008 02.06.2008 03.06.2008 04.06.2008 05.06.2008 06.06,2008 09.06.2008 10.06.2008 11.06.2008

71,8332 71,1356
71,6222 73,2991 73,4586 73,0289 72,801 72,5664 71,7138 72,9519 72,9325 72,4654 73,6949 75,5224 76,3235 76,6962 76,535 74,8414 74,2281 73,9972 73,5409 75,4786 75,3111 75,0155 74,7227 74,9442 74,4553 74,7407 74,5291 73,1155 71,9111 72,9866

0,5 -1,0
0,7 2,3 0,2

0,8 -1,4
3,5 2,6

0,2 0,2
0,0 0,8 0,7 0,8 -0,2 0,3 -0,2 2,0 0,4 -0,6 2,0 2,6 1,4 1,7 1,5 -1,3 0,0 0.1 -0,2 1,7 -0,4 -0.2 0,3 0,4 0,0 0,7 1,6 -1,4 -1,1 2,8

1,0 1,4
2.8 7,8 0,0 2,3 0,1 0,2 0,9 0,0 0,0 0,2 0,0 0,0 0,0 1,7 4.1 0,8 0,5 0,0 0,0 3,8 0,7 0,0 0,2 0,2 0.2 0.0 5,3 0,1 0,1 2,2

1,3 1,3
1,3 1,3 3,3 1,3 1,3 1,3 1,3 1.3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1.3 1,3 1,3 1,3 1,3 1,3

0,1 0,1
0,0 0,6 0,1 0,6 -O, 1 0,3 -0,2 1,5 0,3 -0,4 1.5 2,0 1,1 1,3 1,1 -1,0 0,0 0,1 -0,2 1,3 -0,3 -0,1 0,2 0,3 0.0 0,6 1,2 -1,0 -0,8 2,1

0,46 0,25
0,28 0,22 0.20 0,35 0,26 0,17 0,20 0,20 0,29 0,44 0,27 0.23 0,32 0,25 0,23 0,20 0,27 0,07 0,21 0,19 0,26 0,51 0,35 0.22 0,28 0,16 0,21 0,17 0,27 0,46

-0,6 -0,3 -0,3 -1,2 1,7 0,0 -0,6 1,7 2,4 1,0 0,5 -0,2 -2,3 -0,8 -0,3 -0,6 2,6 -0,2 -0,4 -0,4 0,3 -0,7 0,4 . 0,3 -1,9 -1,7 1,5

-0,3 -1,7 0,2 -0,6 -1,1 0,0 -0,2 0,2 -0,1 0,0 -0,2 -1,5 -2,2 -1,1 . 0,9 -0,3 -0,2 3,8 0,7 0,0 -0,7 0,3 -0,6 -0,2 -2,5 -0,5 -0,5 -1,7

12.06.2008
13.06.2008 16.06.2008 17.06.2008 18.06,2008 19.06.2008 20.06.2008 23.06.2008 24.06.2008 25.06.2008 26.06.2008 27.06.2008 30.06.2008 01,07.2008 02.07.2008 03.07.2008 04.07.2008 07.07.2008 08.07.2008 09.07.2008 10.07.2008 11.07.2008 14.07.2008 15.07.2008 16.07.2008 17.07.2008 18.07.2008 21.07.2008 22.07.2008

72,4656
71,3668 72,1368 73,0404 72,6863 72,5106 71,9558 71,21 70,5734 70,4321 70,0906 68,0614 67,7209 66,2062 66,8063 65,8942 65,8544 65.4242 64,3862 65,727 67,9667 66,9464 65,9954 63,7754 63,5443 66,7508 68,9652 70,3413 69,6506

. 0,7
-1,5 1,1 1,2 -0,5 -0,2 -0.8 -1,0 -0,9 -0,2 -0,5 -3,0 -0,5 -2,3 0,9 -1,4 -011 -0,7 -1,6 2,0 3,3 -1,5 -1,4 -3,5 -0,4 4,8 3,2 2.0 -3,0

1,6
0,9 -0,4 0,0 -1,3 -0,9 -1,6 -1,3 -0,4 1.0 -3,4 -1,4 -0,2 -2,8 0,1 1,7 -2,5 1,3 -1,3 2,4 -1,4 -3,0 1.0 -3,0 0,2 2,9 3,5 0,2 -0,2

-1,5
-1.9 1,6 1,5 0,6 0,6 0,5 0,0 -0,4 -0,6 1.9 -1,9 -O, 1 -0,2 1,1 -2,3 1.8 -1,3 -0,5 0,7 4,5 0,6 -1,8 -1,3 -0,2 3,1 1,2 2,1 -0,6

3,1
1,3 0,1 0,0 1,1 0,4 2.0 1,3 0,0 1,5 10,1 1,4 0,0 6,8 0,1 3,7 5,2 2,2 1,3 6,7 1.5 7,6 1,3 8,0 0,1 9.7 13,6 0,1 0,0

1,3
1,3 1,3 1,3 1,3 1,3 1.3 1.3 1,3 1,3 1,3 1,3 1,3 1,3 1.3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3

-1,2
-1,5 1.2 1.1 0,4 0,4 0.4 O, 0 -0.3 -0,5 1,5 -1.4 -0,1 -0,2 0.8 -1,7 1,4 -1,0 -0,4 0,5 3,4 0,5 -1,4 -1.0 -0.2 2.4 0,9 1,6 -0,5

0,23
0,36 0,17 0,21 0,26 0,32 0,31 0,27 0,36 0,25 0,40 0,31 0,27 0,31 0,28 0,46 0,22 0,28 0,33 0,29 0,57 0,24 0,29 0,26 0.32 0.29 0,32 0.34 0,26

23.07.2006
24.07.2008 25.07.2008 28.07.2008 29.07.2008 30.07.2008 31.07.2008 01.08.2008 04.08.2008 05.08.2008 06.08.2008 07.08.2008 08.08.2008 11.08.2008 12.08.2008 13.08.2008 14.08.2008 15.08.2008 38.08.2008 19.08.2008 20.08.2008 21.08.2008 22.08.2008 25.08.2008 26.08.2008 27.08.2008 28.08.2008 29 08.2008 01.09.2008 02.09.2008 03.09.2008 04.09.2008 05.09.2008 08.09.2008 09.09.2008 10.09.2008 11.09.2008 12.09.2003 15.09.2008 16.09.2008 17.09.2008 18.09.2008 19.09.2008

71,8322
72,2928 69,8252 68,02 66,4764 67,7906 68,0127 68,8799 68,4985 70,8278 72,4145 73,0526 73,136 74,1058 74,6146 73,4042 74,8024 75,8216 75,9426 75,1424 74,8358 74,3325 75,7681 76,3445 75,9607 74,7843 76,0025 77.7139 77,6461 78,5799 78,5905 78,4745 75,7439 78,1939 77,521 76,6903 75,2098 76,5314 74,8238 74,1057 73,5954 72,0602 75,5629

3,0
0,6 -3,5 -2,7 -2,3 1,9 0,3 1,3 -0,6 3,3 2,2 0,9 0,1 1,3 0,7 -1,6 1,9 1,3 0.2 -1.1 -0,4 -0,7 1,9 0,8 -O, 5 -1,6 1,6 2,2 -0,1 1,2 0,0 -0,1 -3,6 3,1 -0,9 -1,1 -2,0 1,7 -2,3 -1,0 -0,7 -2,1 4,6

3,6
-1,3 -4,1 -2,0 0,1 2,4 0,0 -0,3 -0.6 4,5 0.4 0,1 1,0 1.4 -0,3 -3,4 0,5 0.6 -0.6 -4,2 as -1,5 2,8 0.0 0,0 -0,9 2,7 0.2 -O, 1 2,7 -1,2 -2.7 -2.3 0,0 5,1 -1,3 -1.4 P, 5 -6.3 -3,4 -1,0 -1,1 11,0

0,9
1,7 -0,6 -1,1 -2,2 0,6 0,6 1,7 0,1 0,6 2,2 1,1 -0,3 0,6 1,1 0,8 1,8 1.2 0.8 1,9 -0,7 0.6 0,3 1,0 -0,3 -0.8 0,1 2,3 0,2 -0.3 110 1,8 -1,9 3,4 -4.0 0.0 -0,8 2,6 2,1 1.5 0,2 -1,2 -2,3

14,6
1,3 15,4 3,4 0,1 6,6 0,0 0,0 0,2 22,2 013 0.1 1,5 2,6 0,0 10,3 0,5 0,7 0,2 16.0 1,0 1,8 9,0 0,0 O1O 0,5 8,2 0.1 0,0 8,5 1,0 6,1 4,3 O, 0 28,2 1,1 1,5 0,5 37,89712 10,37321 0,590428 0,831295 125,4039

1,3
1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,3 1,4 1,3 1.3 1.3 1,3 1,3 1,3 1,3 1,3 1,3 1.3 1,3 1,3 1,3 15 1.3 1,3 1,3 1,3 1.3 1,3 1.3 1,3 1,3 1,3 1.4 1.3 1,3 1,3 1,4 1,3 1,3 1,3 1,6

0,7
1,3 -0,5 -0,8 -1,7 0,5 0.5 1,3 0,1 0,4 1,7 0.8 -0,2 0,5 0,9 0,6 1,4 0,9 0,6 1.4 -0,5 0,4 0.2 0,8 -0,2 -0,6 0,1 118 0,1 -0.3 0.8 1,4 -1,4 2.6 -2,9 O, 0 -0,6 1,3 1,5 1.1 0,1 -0,9 -1,4

0,18
0,19 0.25 0,26 0,23 0,21 0,25 0,25 0,18 0,30 0,21 0,18 0,22 0,18 0,21 0,26 0,23 0,17 0,12 0,19 0,22 0,25 0,20

0.05
0,18 0,31 0,23 0.24 0,1 . 0,3 0,8 1,4 -1,4 2.6 -2,9 0,0 -0,6 T1.3 1,5 1.1 0,1 -0,9 -1,4 0,11 0,31 0,30 0,33 0,32 0,32 0,37 0,44 0,33 0,23 0,33 0,39 0,42 0,36 0,52 0.08 0,08 0,08 0,08 0,08 0108 0,08 0,08 0,08 0,08 0.08 0,08 0,08 0,08 0,08

243,9 aupermodit

Sum SARk mod. SARI SARk CARL

23,49 5.9.2008 -1,2 Without 0,2 without 8.9.2008

1,4

and

19.9,2008

R mean return of BEINSUR during the estimation 5,3 period -0,19127 T Is the number of days In the estimation period CARt modlflod 88 -4.7 irr 0.011364 super 7Ifloq Rlel S standard error of the OLS marke regression 1.286832 square of S standard error of the OLS market model regression 1,6559 sum of (Rmt-Rm squared) 243.3

CARt

Appendix D: Formulas, Variables, Results and Data of the event study I method

legal

& General

'-

125,5
24.04.2008 25.04.2008 28.04.2008 29.04.2008 30.04.2008 01.05.2008 02.05.2008 06.05.2008 07.05.2008 08.05.2008 09.05.2008 12.05 13.05,2008 14 05.2008 15.05.2008 16.05.2008 19.05.2008 20.05.2008 21.05.2 008 22.05.2008 23.05.2008 27.05.2 DO" 28.05.2008 008 29.05.2 30.05.2 008 02.06.2008 03.06.2008 04.06.2008 05.06.2008 06.06.2 008 09.06.21) 11 10.06.2 Doll 11.06.2008 12.06.2008 13.06.2008 16.06.2008 17.06.2008 008 18.06.2 19.06.2008 20.06.20 08 23.06.2 008 24.06.2008 25.06.2 008 26.06.2008 27.06.2008 30.06.2008 01.07.2 o08 02.07.2008 03.07.2008 04.07.2008 07.07.2008 "0" 08.07.2 09.07.2008 10.07.2008 11.07.2 008 14.07.2008 15.07.2008 16.07.2008 17.07.2008 18.07.2008 21.07.2008 22.07.2008 23.07.2008 24.07.2008 25.07.2008 28.07.2008 29.07.2008 30.07.2008 31.07.2 "0" 01.08.2008 04.08.2008 05.08.2008 06 08.2008 07.08.2 008 08,08.2008 11.08.2008 12.08.2008 13.08.2008 14.08.2008 15.08.20 08 18,08.2008 19.08.2008 20.08.2008 21.08.2 008 22.08.2008 26.08.2008 27.08.2008 28.08.2008 124,7 126,9 128,5 126,6 126,5 125,1 127,2 127,7 127,3 127,1 124,9 125,1 124,1 123,5 122,2 124,0 124.1 123,3 120,2 138,3 119,2 117,7 119,7 119,0 120,7 117,4 118,5

0.0
-0,6 1,7 1,2 -1,5 0,0 -3,1 1,6 0.4 -0,3 -0,2 -1,8 0,2 -0,8 -0,4 -1,1 1,5 0,1 -0,6 -2,6 -1,6 0.8 -1,2 1,6 -0,6 1,4 -2,8 0,9

0,0
0,8 -1,4 1,5 2,6 -0,3 -1,7 0,2 -0.6 -1,1 0,0 -0,2 0,2 -0.1 0,0 -0,2 -1,5 -2,2 -1,1 -0,9 -0,3 -0,2 1,8 0,7 0.0 -0,7 0,3 -0,6

0,0
-0,5 2,0 1,4 -1,5 0,2 -0.6 1,8 0,6 -0,1 0,0 -1,6 0,4 -0,7 -0,3 -0.9 1,7 0,3 -0,4 -2,4 -1.4 1.0 . 1,1 1,8 -0,4 1,6 -2,7 1,1

0,0
1,0 1,4 2,8 7,8 0,0 2,3 0,1 0,2 0,9 0,0 0,0 0,2 0,0 0,0 0,0 3,7 4,1 0,8 0,5 0,0 0,0 3,8 0,7 0,0 0,2 0,2 0,2

1.7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1.7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

0,0
. 0,3 1,2 0.8 . 0,9 0,1 -0,5 1,1 0,4 0,0 0,0 -1,0 0,2 -0,4 -0,2 -0,6 3,0 0,2 . 0,2 -1,5 -0,8 0.6 -0,7 1,1 -0,3 1,0 -1,6 0,7

35,08
32,10 20,05 18,25 16,11 17,64 10,64 35,99 40,48 21,92 25,06 17,45 16,46 27,48 40,18 26,12 23,03 21,12 25,46 36,78 33,24 27,14 20,52 18,13 33,30 34,21 26,86 31,62

9,24

60 60 58 55 57 63 58 53 57 58 58 60 60 60 60 59 59 59 56 56 62 65 65 59 57 55 57 58 63 63 60 65 66 64 64 62 GO 60 60 60 66 67 72 68 72 79 78

117,9
118,6 117,5 115,5 113,9 112,4 112,7 112,5 114,0 116,3 111,8 308,8 107,2 105,8 105,8 105,7 101,6 100,1 99,7 97,6 99,5 99,2 95,2

-0,5
0,6 -0.9 -1,8 -1,4 -1,3 0,3 -0,2 1,3 2,0 -4,0 -2,8 -1,5 -1,3 0,0 0,0 -4,0 -1,5 -0,3 -2,2 1,9 -0,3 -4,3

-0.2
-2,5 -0,5 -0,5 -1,7 1,6 0,9 -0,4 0,0 -1,3 -0,9 -1,6 -1,3 -0,4 1,0 -3,4 -1,4 -0,2 -2,8 0,1 1,7 -2,5 1,3

-0,3
0,8 -0,7 -1,6 -1,1 -1,2 0,4 0,0 1.5 2,2 -3,8 -2,5 -1,3 -1,1 0,1 0,3 . 3,8 . 1.3 0,0 -2,0 2,0 0,0 -4,1

0,0
5,3 0.1 0,1 2,2 3,1 1,3 0,1 0,0 1,1 0,4 2,0 1.3 0,0 1,5 10,1 1,4 0,0 6,8 0,1 3,7 5,2 2,2

1,7
1,7 1,7 1.7 1,7 1,7 1,7 1,7 1.7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

-0,2
as -0,4 -1,0 -0,7 -0,7 0,2 0,0 0,9 1,4 -2,3 -1,5 -0,8 -0,7 0,1 0,2 -2,3 . 0,8 0,0 -1,2 1,2 0.0 -2,5

27,34
28.13 29,24 23,86 38,83 47,74 48,36 17.72 29,22 24,43 66,36 33,20 41,63 22,48 32,41 25,80 33,45 26,43 26 11 28,17 35,41 51.15 3076 ,

95,8
95,3 100,8 98,9 95,5 95,8 91,3 91.2 95.3 99,8 100,2 99,9

0,7
-0,5 5,5 -1,9 -3,6 0,3 -4,9 -0,1 4,2 4,5 0,4 -0,3

-1,3
2,4 -1.4 -3,0 1.0 -3,0 0,2 2,9 3,5 0,2 -0,2 3,6

0,9
. 0,4 5.7 -1.6 -3,4 0,6 -4,7 0, D 4,3 4,7 0,5 -0,2

1,3
6,7 1,5 7,6 1,3 8,0 0,1 9,7 13,6 0.1 0,0 14,6

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

0,5
-0,3 3.4 -1,0 -2.1 0,4 -2,9 0,0 2,5 2,8 0,3 -0,1

35 77 , 23,22

37,52 33,10 41,26 29,79 27,51 34,04 44,57 44,45 25,07 31,73

105,6
106,2

5,5
0,5

-1,3
-4,1

5.7
0,8 . 2,6 -3,5 5,4 -0,7

1,3
15,4

1,7
1,7

3,4
0,5

41,50
37,92

99,0
96,4 93,0 98.1 97.2

-7,2
-2.7 -3,6 5,2 -0,9

-2,0
0,1 2,4 0,0 -0,3

-7,0

3,4
0,1 6,6 0,0 0,0

1,7
1,7 1,7 1,7 1,7

-4,2
-1,5 -2,1 3.2 -0,4

39,32
23,22 29,08 34.66 29,06

97,1
97.1

-0,1
0,0

. 0,6
4,5

O, 1
0,0

0,2
22,2

1,7
1,7

0,1
0,0

23,95
15,22

105,0
105,8 108,7 109,4 110,1 11110 106,1 105,7 105,4 103,2 97,6

7,5
as 2,6 0,7 0,6 0,8 -4,6 -0,4 -0,3 -2,1 -5,7

0,4
0,1 1,0 1,4 -0,3 -3,4 0,5 0,6 -0,6 -4,2 0.8

7,7
1,0 2,8 0,8 0,8 1,3 -4,4 -0,3 -0,1 -1,8 -5,5

0,3
0,1 1,5 2,6 0,0 10,3 OS 0,7 0,2 16,0 1,0

1,7
1,7 3,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

4,6
O, 6 1,7 0,5 0,5 0,6 -2,7 -0,2 -O, 1 -1,0 -3,3

75,44
51,96 47,97 33,61 26,52 24,21 28,06 31: 98 22,95 20,67 27,90 75 75 74 74 74 74 74 74 77 77 80 79 85 82 82 9,24

96,2
95,4 97,9 96,6 96,3 100,5 100 9 101,7

-1,4
-0,9 2,6 -1,4 -0,3 4,3 0,3 0,8

-1,5
2,8 0,0 0,0

-1,2
-0,8 2,8 -1,2 -0.1 4,4 0,5 1,0

1,8
9,0 0,0 0,0 0,5 8,2 0.1 0,0

1,7
1.7 1,7 1,7 1.7 1,7 1,7 1,7

-0,7
-0,5 1,7 -0.7 -0,1 2,6 0,3 0,6

38,12
23,57 64,30 23,61 44,21 24,12 0,6 45.18 17,88

-0,9 2,7 0.2 -0,1

02.09.2008 03.09.2008 04.09.2008 2008 05.09 . 08.09.2008 09.09.2008 10.09.2008 11.09.2008

104,6
300,1 974 94,5100.0 103,1

2,7
-4,4 29 -3,0 54 3,1

2,7
-1,2 -2,7 -2,3 0,0 5,1

2,8
-4,2 -2,6 -2,7 5.6 3,0

8,5
1.0 6,1 4,3 010 28,2

1,7
1.7 1,7 1,7 1,7 1,8

1,7
-2,5 -1,5 -1,6 3,4 1,7

1,7
-2,5 -1,5 -1,6 3,4 1,7

20,22
29.87 28,36 28,67 15,71 41.31

9,24
9,24 9,24 9,24 9,24 9,24

82 83 86 89 B0 85 89 89

100,8
98,1 98.

-2.3
-2,7 0.3

-1,3
-1,4 O. `

-2.1
-2,5 04

1.1
1,5 as

1,7
1,7 1,7

-1,3
-1,5 0,2

-1,3
-1,5 D2

32,13
23,47 23,93

9,24
9,24 9 24

15.09.2008 16.09.2008 17.09.2008 18.09.2008 19.09.2008

M1 _ ii 93,5
87,4 90,4 89,3 106,0

r r, .s_..... a -5,2 -6,3

-7,0 3,3 -1,2 15,8 -3,4 -1,0 -1,1 11,0

-4,8
-6,7 3,5 -1,0 35,5

37,9
10,4 0,6 0,8 125,4

1,8
1.7 1,7 1,7 2,0

nm mi -2,7
-3,9 2,1 -0,6 7,6

-2.7
-3,9 2,1 -0,6 7.6

53,05
91,92 54,29 48,59 73,97

9,24
9,24 9,24 9,24 9,24

115

140 130

243.8714 supermodil

Sum SARk mod. SARI SARk CARL

1,7 -1.7 -9.3

2835,00 Without 5.9.2008 wi thout 8.9.2000

and 19.9.2008

R mean return of BEINSUR during the estimation 6.6 period -0,19127 T Is the number of days in the estimation period CA Rt Modified 88 -6.3 irr 0,011364 sup. rmodtflad CARL S standard error of the OLS market3-l regression -33,5 1,651721 square of S standard error of the OLS market model regression 2.7282 sum of (Rmt-Rm squared) 243,3

Appendix D: Formulas, Variables, Results and Data of the event study method

Zurich

23.04.2008
24.04 200 25.04,2008 : 28.04.2008 29.04.2008 30.04.2008 02.05.2008 05.05.2008 06.05.2008 07.05.2008 08.05,2008 09.05.2008 13.05.2008 14.05.2008 15.05.2008 16.05.2008 19,05.2008 20.05.2008 :

307,8
304 9 313,2 : 315,8 314,8 314,8 324,8 324,1 318,5 319,0 317,2 311,7 312,4 314,3 323,4 321,5 320,6 318,3

0,0
-0,9 2,6 0,8 -0,3 0,0 3,1 -0,2 -1,8 0,2 -0,6 -1,8 0,2 0,6 2,8 -0,6 -0,3 -0,7

0,0
0,8 -1,4 1,5 2,6 -0,3 -1,7 0,2 -0,6 -1,1 0,0 -0,2 0,2 -0,1 0,0 -0,2 -1,5 -2,2

0,0
-0,9 3,0 0,8 -0,6 0,2 3,5 -0,1 -1,5 0,5 -0,4 -1,6 0,4 0,8 3,0 -0,4 0,2 -0,2

0,0
1,0 1,4 2,8 7,8 0,0 2,3 0,1 0,2 0,9 0,0 0,0 0,2 0,0 0,0 0,0 1,7 4,1

1,6
1,6 1,6 1,6 1,7 1,6 1,6 1,6 1,6 1,6 1,6 1,6 1,6 1,6 1,6 1,6 1,6 1,7

0,0
-0,5 1,8 0,5 -0,4 0,1 2,1 0,0 -0,9 0,3 -0,2 -1,0 0,2 0,5 1,8 -02 0,1 -O, 1

2,48 1,68 1,55 0,80 1,12 0,83 1,20 0,44 1,04 0,73 0,65 1,34 1,45 1,05 1,69 1,19 0,87 0,66 0,79 1,30 1,01 0,51 1,06 1,27 0,95 0,88 0,75 0,72 0,72 0,74 0,88 0,76 1,21 1,19 1,88 1,34 1,41 1,03 1,00 1,44 2,19 1,40 1,37 1,05 1,63 1,64 1,21 1,13 1,15 1,25 0,52 0,65 1,37 1,26 0,86 3,75 1,27 1,86 1,91 1,90 1,88 1,10 1,23 1,70 1,36 2,17 1,13 1,06 0,86 0,65 0,76 0,93 0,86 0,66 0,81 0,88 1,16 1,53 0,88 0,97 0,86 1,31 0,89 0,77 1,15 0,66 0,65 0,87 0,98

0,34 67 63 67 68 60 60 65 66 70 70 67 67 66 64 64 67 70 80 86 86 89 82 79

21.05.2008
22.05.2008 23.05.2008 26.05.2008 27,05,2008

314,5
307,4 309,4 302,8 301,5

-1,2
-2,3 0,7 -2,2 -0,4

-1,1
-0,9 -0,3 -0,2 1,8

-O, 8
-2,0 0,9 -2,0 -0,6

O,8
0,5 0,0 0,0 3,8

1,6
1,6 1,6 1,6 1,7

-0,5
-1,2 0,5 -1,2 -0,3

28.05.2008
29.05.2008 30. 02.06.2008 03 c6.2""8 04.06.2008 05.06,2008 06.06,2008

299,6
302,9 306,6 303,2 301,4 299,4 302,8 297,4

-0,6
1,1 1,2

0,7
0,0 -0,7 0,3 -0,6 -0,2 -2,5 -0,5

-0,6
1,3 1,5

0,7
0,0 0,2 0,2 0,2 0,0 5,3 0,1

1,6
1,6 1,6 1,6 1,6 1,6 1,7 1,6

-0,3
0,8 0,9

-1,1 -0,6 -0,7 1,1 -1,8

-1,0 -0,3 -0,5 1,7 -1,5

-0,6 -0,2 -0,3 1,0 -0,9

09.06.2008
10.06.2008 11.06.2008

294,0
291,1 290,0

-1,2
-1,0

-0,5
-1,7 1,6

-0,9
-0,5 -0,2

0,1
2,2 3,1

1,6
1,6 1,6

-0,6
-0,3 -0,1

12,06.2008
13.06.2008 16.06.2008

285,6
281,4 287,0

-1,8
-2,5 2,0

0,9
-0,4 0,0

-1,8
-1,3 2,1

1,3
0,1 0,0

1,6
1,6 1,6

-1,1
-0,8 1,3

17,06.2008
18.06.2008 19.06.2008 20.06.2008 23.06.2008 24.06.2008 25.06.2008 26.06.2008 27.06.2008 30,06.2008 01.07.2008 02.07.2008 03.07.2008 04.07.2008 07.07,2008 08.07.2008 09.07.2008 10.07 2008 . 11.07.2008 14.07.2008

287,8
281,7 277,4 274,2 269,3 268,0 270,3 263,0 256,6 258,6 256,3 255,4 254,7 254,6 253,3 246,9 254,1 252,3 267,8 266,6

0,3
-2,2 -1,6 -1,1 -1,8 -0,5 0,8 -2,8 -2,5 0,8 -0,9 -0,3 0,0 -0,5 -2,6 2,8 -0,7 5,8 -0,4

-1,3
-0,9 -1,6 -1,3 -0,4 1,0 -3,4 -1,4 -0,2 -2,8 0,1 1,7 -2,5 1,3 -1,3 2,4 -1,4 -3,0 1,0 -3,0

0,7
-1,8 -1,1 -0,7 -1,6 -0,5 1,6 -2,4 -2,3 1,4 -O, 8 -0,5 0,3 -0,1 -0,1 -2,8 3,2 0,0 5,8 0,3

1,1
0,4 2,0 1,3 0,0 1,5 10,1 1,4 0,0 6,8 0,1 3,7 5,2 2,2 1,3 6,7 1,5 7,6 1,3 8,0

1,6
1,6 1,6 1,6 1,6 1,6 1,7 1,6 1,6 1,7 1,6 1,7 1,7 1,6 1,6 1,7 1,6 1,7 1,6 1,7

0,4
-1,1 -0,7 -0,5 -1,0 -0,3 1,0 -1,4 -1,4 0,9 -0,5 -0,3 0,2 -0,1 -0,1 -1,7 2,0 0,0 3,5 0,2 . 0,9 2,1 0,9 0,6 -0,5

15.07.2008
16.07.2008 17.07.2006 18.07 21.07.2008 22.07.2008

257,7
254,8 265,2 268,9 271,1 270,1

-3,4
-1,1 3,9 1,3 0,8 -0,4

0,2
2,9 3,5 0,2 -0,2 3,6

-3,3
. 1,5 3,5 1,5 2,0 -0,8

0,1
9,7 13,6 0,1 0,0 14,6

1,6
1,7 1,7 1,6 1,6 1,7

-2,0

23.07.2008
24.07.2008 25.07.2008 28.07.2008

282,2
286,0 274,5 270,7

4,3
1,3 -4,2 -1,4

-1,3
-4,1 -2,0 0,1

4,7
2,2 -3,7 -1,2

1,3
15,4 3,4 0,1

1,6
1,7 1,6 1,6

2,8
1,3 -2,2 -0,8

81 81

29.07,2008 30.07.2008
31.07.2008 04.08.2008 05.08.2008 06.08.2008 07.08.2008 08.08,2008 11.08.2008 12.08.2008 13.08.2008 14,08.2008 15.08.2008 18.08.2008 19.08.2008 2(). a8.2008 21.08.2008 22.08,2008 25.08.2008 26.08.2008 27.08.2008 28.08,2008 29.08 2008 01.09.2008 02.09.2008 03.09,2 008 0409 2008 05.09.2008 08.09.2008 09.09.2008 10.09.2008 11.09.2008 12.09.2008 15.09.2008

268,6 275,6
276,5 274,0 278,3 283,3 283,1 282,7 287,1 288,2 281,5 284,1 285,6 282,0 275,5 274,7 274,1 278,9 282,2 279,2 277,2 283,8 288,5 285,0 291,7 290,6 285,8 278,8 290,3 293,5 288,9 282,3 794.4 272,0

-0,5 2,6
0,3 -0,9 1,5 1,8 0,0 -0,1 1,5 0,4 . 2,4 0,9 0,5 -1,3 -2,4 -0,3 -0,2 1,7 1,2 -1,1 -0,7 2,3 1,7 -1,2 2,3 -0,4 -1,7 -2,5 4,0 1,1 -1,6 -2,3 ! 1.4 -4,6

2,4 0,0
-0,3 -0,6 4,5 0,4 0,1 1.0 1,4 -0,3 -3,4 0,5 0,6 -0,6 -4,2 0,8 -1,5 2,8 0, O 0,0 -0,9 2,7 0.2 -0,1 2,7 -1,2 -2,7 -2.3 0,0 5,1 -1,3 -1,4 0,5 -6,3

-1,0 2,7
0,5 -0,6 1,0 1,9 0,1 -0,1 1,5 0,6 -1,6 1,0 0,6 -1,0 -1,5 -0,2 0,2 1,4 1,4 -0,9 -0,4 2,0 1,8. -1,1 2,0 0,0 -1,1 -1,9 4,1 0,4 -1,2 -1.9 0,8 -3,3 -

6,6 0,0
0,0 0,2 22,2 0,3 0,1 1,5 2,6 0,0 10,3 0,5 0,7 0,2 16,0 1,0 1,8 9,0 0,0 0,0 0,5 8,2 O. 1 0,0 as 1,0 6,1 4,3 0,0 28,2 1,1 1,5 0,5 37,9

1,7 1,6
1,6 1,6 1,7 1,6 1,6 1,6 1,6 1,6 1,7 1,6 1,6 1,6 1,7 1,6 1,6 1,7 1,6 3,6 1,6 1,7 1,6 1,6 1,7 1,6 1,7 1,7 1,6 1,7 1,6 1,6 1,6 1,6

-0,6 1,7
0,3 -0,4 0,6 1,1 0,1 -O, 1 0,9 0,4 -1,0 0,6 0,4 -0,6 -0,9 -0,1 0,1 0,8 0,8 -0,6 -0,2 1,2 3,1 -0,6 1,2 0,0 -0,6 -1,2 2,5 0,2 -0,7 -1,2 0.5 . 2,0 1,2

82 87 82 81 82 83 80 78 78 76 76 76 80 79 82

77,5 77,5 79,5 81 79

1,14

0,34

73

O, 0
-0,6

1,01
1,39

0,34
0,34

75
76

-1,2
2,5 0,2

1,22
1,76 1,10 1,09 1,08 0.96

034
0,34 0,34 0,34 0,34 0.34

79
73 76 75 75 78

-0,7 -1,2 0,5

16.09.2008 17.09,2008
18.09.2006

265,1 278,5
277,5

-2,6 4,8
-0,3

-3,4 -1,0
-1,3

-1,8 5,1
0,0

10,4 0,6
0,8

1,6 1,6
1,6

-2,0
-1,1 3,1

1,88
2,37 2,85

0,340,34 0,34

103
113 110

-1,1 3,1
0.0

19.09.2008

293,9

5,6

11,0

0,0
2,4

3,9

125,4
243,9

1,6
Sum

1,90
2,91

2,4
SARK

0,34
0.34

105
85

2,4 -0,1 -2,5

supermodal

mod. SARI SARk CARt

104,68 Without 5.9.2008 Without 8.9.2008

and 19.9.2008

R mean return of BEINSUR during the estimation 9,3 period -0,19127 T Is the number of days In the estimation period d CARt modlfl. 88 -0,5 1! T 0.011364 sup-modified 4169 S standard error of the OLS market , regression -8,9 1,629483 square of S standard error of the OLS market model regression 2,6552 sum of (Rmt-Rm squared) 243.3

CARt

Appendix D: Formulas,
Variables
Results

share ; Date p rice On t he 1 A'12

R c hange In % sh!!

P_ change ro In

AR Ab normal

MU I hRO
R_ SD rn moan Return stand deviat

R etu 0,0
0,8 -1,4

it ard ion 3

SAR

a "

AR

Sum

SAR

Volu mon
shar es

of
In

Mini mum
Volu me Is

SY C Ds
(b

,
and

25.04.2008
28.04,2008 29.04.2008

23,2
123,7 122,5

0.0
0,4 -1,0

0,0
-0,1 0,1

0,0
1,0 3,4

.2 1,2
1,2

0,0
-0,1 0,1

p) 43
40 42

1,3
1,1 1,3

0.50

Data of the event

study method

30.04.2008
02.05.2008 05.05.2008 06.05.2008 07.05.2008 08.05.2008 09.05.2008 12.05.2008 13.05.2008 14.05.2008 15.05.2008 16.05.2008 19,05.2008 20.05.2008

123,5
126,4 126,8 124,7 124,8 121,7 121,1 122,3 122,2 122,4 121,1 121,9 120.8 120,2

0,7
2,3 0,3 -1,7 0,1 -2,6 -0,4 0,9 -0,1 0,2 -1,0 0,6 -0,9 -0,5

1.5
2,6 -0,3 -1,7 0,2 -0,6 -1,1 0,0 -0,2 0,2 -0,1 0,0 "0,2 -3,5

-0,3
0,5 0,6 -0,4 0,0 -2,1 0,5 1,0 0,1 0,1 -0,9 0,6 -0,7 0,7

2.8
7,8 0,0 2,3 0,1 0,2 0,9 0,0 O, 0 0,2 0,0 0,0 0,0 1,7

1,2
1,3 1,2 1,2 1,2 1,2 1,2 1,2 1,2 1,2 1,2 1,2 1,2 1,2

-0,2
0,4 0,5 -0,3 0.0 -1,7 0,4 0,8 0,1 0,1 -0,7 0,5 -0,6 0,5

1,4
2,3 0,6 1,9 1,1 3,3 1,5 0,6 1,2 1,3 1,4 1,7 1.3 1,2

43
39 39 42 43 48 47 46 44 44 43 41 37 43

21.05.2008
22.05.2008 23.05.2008 26.05.2008 27.05.2008 28.05.2008 29.05.2008 30.05.2008 02.06.2008 03.06.2008 04.06.2008 05.06.2008

119,0
118,3 118,8 117,9 117,9 119,5 119,9 120,7 119,4 119.1 118,8 119,8

.1 C)
-0,6 0,4 -0,8 0,0 1,4 0,3 0,6 -1,0 -0,2 -0,2 0.8

-2,2
-1,1 -0,9 -0,3 -0,2 1,8 0,7 0,0 -0,7 0,3 -0,6 -0,2

0,7
0,2 1,2 -0,5 0,2 0,1 -0,1 0,7 "0,5 -0,4 0,3 1,0

4,1
0,8 0,5 0,0 0,0 3,8 0,7 0,0 0,2 0,2 0,2 0,0

1,3
1,2 1,2 1.2 1,2 1,3 1,2 1,2 1,2 1,2 3,2 1,2

0.6
0,2 0,9 -0.4 0,1 0,1 -0,1 0,5 -0,4 -0,3 0,2 0,8

1,6
1,0 1,5 0,5 1.1 1,4 1,3 1,1 0,9 1,1 1,4 1,6

45
50 54 54 55 49 47 45 48 48 50 50

06.06.2008
09.06.2008 10.06.2008

119,6
118,9 118,2

-0,2
-0,6 . 0,6

-2,5
-0,5 -0,5

1,7
-0,1 -0,2

5,3
0,1 0,1

1,3
3,2 1,2

1,3
-0,1 -0,2

2,1.
1,2 1,5

52
55 56

11.0s. 20013
12.06.2008 13.06.2008 16.06.2008 17.06.2008 18.06.2008 19.06.2008 20.06.2008 23.06.2008 24.06.2008

118,8
119,9 120,9 121,7 121,7 120,6 120,3 119,1 117,3 115,5

0,5
0,9 0,8 0.6 0'0 .0 ,9 -0,2 -1,1 -1,5 "1,5

-1,7
1,6 0,9

1,8
-0,2 0,2 1,0 0,1 0,1 0,5 0,2 -0,5 -1,1

2,2
3,1 1,3 0,1 0,0 1,1 0,4 2,0 1,3 0,0

1,2
1,3 1,2 1,2 1.2 1,2 1,2 1,2 1,2 1,2

1,5
-O, 1 0,2 0,8 0,1 0,1 0,4 0,1 -0,4 -0,9

2,2
2,3 1,6 1,4 1,1 1,3 1,5 4,2 2,0 2,3

52
51 48 47 45 48 50 55 54 57

-0,4 0,0 -1,3 -0,9 -1,6 -1,3 -0,4

25.06.2008
26.06.2008 27.06.2008 30.06.2008 01.07.2008 02.07.2008 03.07.2008 04.07.2008 07.07.2008 08.07.2008 09.07.2008 10.07.2008 11.07.2008 14.07.2008 15.07.2008 16.07.2008 17.07.2008 18.07.2008

115,9
114,6 112,0 110,8 109,7 109.2 108,6 108, G 109,0 108,3 110,2 109.5 109,0 109,3 106,7 106,1 108,3 110,8

0,3
"1,1 "2.4 -1,0 -1, D -0,4 -0,6 0,0 0,4 -0,6 1,7 -0,6 -0,5 0,3 -2,4 -0,5 2,0 2,2

1,0
"3,4 -1,4 -0,2 -2,8 0,1 1,7 -2,5 1,3 -1,3 2,4 -1,4 -3,0 1,0 -3,0 0,2 2,9 3,5

-0,4
1.4 -1,3 . 0,8 1,1 -0,4 -1,8 1,9 -0,5 0,4 0,0 0,5 1,7 -0,4 -0,2 -0,6 0,0 -0,3

1,5
10,1 1,4 0,0 6,8 0,1 3,7 5,2 2,2 1,3 6,7 1,5 7,6 1,3 8,0 0,1 9,7 13,6

1,2
1,3 1,2 1,2 1,3 1,2 1,3 1,3 1,2 1,2 1,3 1.2 1,3 1,2 1.3 1,2 1,3 1,3

-0,3
1,1 -1,0 -0,6 0.8 -0,3 -1,4 1.5 . 0.4 0,3 0,0 0,4 1,3 -0.3 -0,1 -0,5 0,0 -0,2

1,4
1,7 2,3 2,1 1,7 2,2 2,1 0,9 1.0 2.1 1,8 1,5 2,2 1,2 3,0 2,5 2,0 3,1

52
57 60 58 60 61 61 61 60 63 59 59 58 55 58 56 53 52

21.07.2008
22.07.2008 23.07.2008 24.07.2008 25.07.2008 28.07.2008 29.07.2008

112,6
112,7 115,7 116,4 105,6 105,3 104,9

1,6
0,3 2,6 0,6 -10,2 "0,2 -0,4

0,2
-0,2 3,6 -1,3 -4,1 -2,0 0,1

1,5
0,3 0,0 1,6 -7,1 1,3 -0,4

0,1
0,0 14,6 1,3 15,4 3,4 0,1

1,2
1,2 1,3 1,2 1,3 1,3 1,2

1,2
0,2 0,0 1,3 -5,6 1,0 -0,4

1,6
1.3 1,9 1,5 11,7 2.6 2,1

49
49 45 45 48 47 47

30.07.2008
31.07.2008 01.08.2008 04.08.2008 05.08.2008 06.08.2008 07.08.2008 08.08.2008 11.08.2008 12.08,2008 13.08.2008

105,7
106,6 107,1 106,4 110,1 111,9 111.1 109,3 109,9 109,6 108,5

0,7
0,9 0,4 -0,7 3,3 1,7 -0,7 -1,6 0,5 -0,2 -1,0

2,4
0,0 -0,3 -0,6 4,5 0,4 0,1 1,0 1,4 -0,3 -3,4

-1,0
1,0 0,7

6,6
0,0 0,0 0,2 22,2 0,3 O, 1 1,5 2,6 0,0 10,3

1,3
1,2 1,2 1,2 1,3 1.2 1,2 1,2 1,2 1,2 1,3

-0,8
0,8 0,6

1,6
1,8 1,5 1,1 2,3 2.4 1,8 1,8 1,0 1,1 1,4

46
48 49 49 47 46 48 50 47 45 45

-0,2 0,1 1,4 -0,7 -2,3 -0,4 0,1 1,5

-0.2 0,1 1,2 -0,6 -0,4 O, 0 1,2

14.08.2008
15.08.2008 18.08.2008 19.08 20.08.2008

107,7
106,7 106,0 104,1 103,9

-0,8
. 0,9 -0,6 -1,8 -0,2

0,5
0,6 -0,6 -4,2 0,8

-1,2
-1,3 -0,1 1,3 -0,8

0,5
0,7 0,2 16,0 1,0

1,2
1,2 1,2 1,3 1,2

-0,9
-1,1 -0,1 1,0 -0,6

1,2
1,7 O, 8 1,7 0,9

45
45 45 50 48

21.08,2008
22.08.2008 25.08.2008 26.08.2008 27.08.2008 28.08.2008 29 08.2008 2008 0109 02.09.2008 03.09.2008 04.09.2008 05.09.2008 08.09.2008 09.09.2008 10.09.2008 11.09.2008 12.09.2008 15.09.2008 16.09.2008 17.09.2008 18,09.2008 19,09,2008

103,1
103,9 104,4 104,3 103,8 105,1 106.2 105,5 108,1 107,4 105,3 102,9 106,5 106,7 106,6 104.5 105,0 100,1 96,4 97,2 96,9 104.2

-O, 6

0,8 0,5 O, D

-1,5

0,4
"1,2 0,6 0,0 0,2 -0,7 1,1 "O, 5 0,5 0,2 0,0 -0,6 3,5 -3,5 0,9 -1,0 0,2 -0,3 -1,2 1,5 0,6 -1,0

1,8
9,0 0,0 0,0 0,5 8.2 0,1 O, O 8,5 1,0 6,1 4,3 0,0 26,2 1,1 1,5 0,5 37,9 10,4 0,6 0,8 125,4

3,2
1,3 1,2 1,2 1.2 1,3 1,2 1,2 1.3 1,2 1,3 1,3 1,2 1,3 1,2 1.2 1,2 1,3 1,3 1,2 1,2 1,5

0,3
-1,0 0,5 0,0 0,2 "0,6 0.9 -0.4 0,4 0,2 0,0 -0,5 2,8 -2,7 0,7 -0,8 0,7 -0.2 -1.0 1,2 0,5 -0,7 -0,4 0.4 0,2 0,0 -0,5 2,8 -2,7 0,7 -0,8 n7 -0,2 -1.0 1.2 0,5 -0,7

2,8 0,0 O, O

1,1
1,1 0,5 0,8 1,0 1.4 1.3 0,7 1,5 1.0 1,6 2,0 2,4 1.6 1.8 1.6 1,4 5,0 5,1 4,1 3,3 6,4

49
44,5 46,5 46,5 47 46 45 45 46 49 50 53 47 50 49 49 51 70 80 75 60 58

"0,5 1,2 1,1 -0,7 2,4 -0,7 -2,0 -2,3 3,4 0,1 -0,1 -2,0 0,5 -5,0 -3,8 O, 8 -0,2 7,0

"0,9 2,7 0,2 -0,1 2,7 -1,2 -2,7 -2,3 0,0 5,1 -1,3 -1,4 0.5 -6,3 -3,4 -1,0 -1,1 11,0

0,50 0,50 0,50 0,50 0,50 0,50 0,50 0,50 0,50 0,50 0.50 0.50 0,50 0,50 0,50

243,9 supermodil

Sum SARk mod. SARI SARk

CARt

-0,2 -3,0 -2.4

152,4 Without 5.9.2008 Without 8.9.2008

and 19.9.2008

R mean return of BEINSUR during the estimation period -0,9 -0,19127 T is the number of days In the estimation CARL period modified 88 -11.3 1/T 0,011364 CARt supermodiflad S standard regressio n error of the OLS markeriI -8,5 1,235524 square of S standard er ror of the OLS market model regression 1,5265 sum of (Pmt-Rm squared) 243,3

Appendix D: Formulas, Variables

, Results Data and of study the

share price Data 2008 . . 24.04,2008 25.04,2008 28.04.2008 29.04.2008 30.04.2008 01.05.2008 02.05.2008 06,05.2008 07.05.2008 08.05,2008 09 05.2008 12.05.2008 13.05 2006 . 14.05.2008 23 04 122,6 126,9 128,8 125,7 127,2 126,8 133,8 131,7 126,3 123,8 120,6 120,6 119,4 119,4 on c

Mt hange change

RIn Ab

AR.,
normal 0 0 , -0,6 3,6 1,6 -2,2 1,4 -O, 1 5,4 -1,4 -4,0 -1,9 -2,4 0,2 -0,8 0,2

R- "Old-mutual So "
mean 0,0 1,0 1,4 2,8 7,8 0,0 2,3 0,1 0,2 0,9 0,0 0,0 0,2 0,0 0,0 standard deviation 1,7 2,7 1,7 1.7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

SAR

AR

Sum
k

SAR

V olumen
traded 2

of

Min im -Tr adum 7.61

6YC DS
Spre ads 120 120 123 118 120 124 113 108 120 122 122 123 123 119 119

0 0 1 -0,8 3,4 1.4 "2,4 1,2 -0,3 5,2 -1,6 -4,2 "2,1 -2,6 0,0 -1,0 0,0

0 0 , 0,8 -1,4 1,5 2,6 -0,3 -1,7 0,2 -0,6 -1,1 0,0 -0,2 0,2 -0,1 0,0

0,0 -0,4 2,2 1,0 -1,3 0,8 -0,1 3,2 -0,8 -2,4 -1,1 -1,5 0,1 -0,5 0,1

2,10 21,33 14,02 12,97 14,92 24,27 4,11 15,62 21,08 21,37 16,79 19,96 14,33 19,31 32,59

event method

15.05,2008
16.05.2008 19.05.2008 20 05.2008 21.05.2008 22.05.2008 23.05.2008 27.05

120,4
123,1 121,9 119,5 114,5 111,9 113,3 112,3

0,8
2,2 -0,9 "2,1 -4,4 -2,3 1,2 -0,9

-0,2
-1,5 -2,2 -1,1 -0,9 -0,3 -0,2 1,8

1,0
2,3 "0,7 -1,9 -4,2 -2,1 1,4 -0,7

0,0
1,7 4,1 0,8 0,5 0,0 0,0 3,8

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7

0,6
1,4 -0,4 -1,1 -2,5 -1,3 0,9 -0,4

20,98
19,86 12,27 16,87 18,64 18,30 15,73 22,85

117
117 117 117 119 126 131 133

28.05.2008
29.05,2008

114,0
114,2

1,5
0,2

0,7
0,0

1,7
0,4

0,7
0,0

1,7
1,7

1,0
0,2

27,83
22,29

125
119

30.05.2008
02.06.2008 03.06,2008 04,06.2008 05.06.2008 06,06.2008 09.06.2008 10.06.2008 11.06.2008 12,06.2008 13.06.2008 16.06.2008 17.06.2008 18.06.2008 19.06.2008 20 06.2008 23.06.2008 24.06.2008 25.06.2008 26.06.2008 27.06 30,06.2008

117,8
115,0 115,7 117,1 117,4 114,5 112,1 110,1 108,8 110,5 109,2 110,1 110,8 108,2 105,9 104,8 101,0 98,0 95,4 93,8 91,9 92,0

3,0
-2,4 0,6 1,2 0,2 -2,5 -2,1 -1,8 -1,2 1,5 -1,2 0,9 0,6 -2,4 -2,2 -1,1 -3,7 -3,1 -2,7 -1,7 -2,1 0,1

"0,7
0,3 -0,6 -0,2 -2,5 -0,5 -0,5 -1,7 1,6 0,9 -0,4 O, 0 -1,3 -0,9 -1,6 -1,3 -0,4 1,0 -3,4 "1,4 . 0,2 -2,9

3,2
-2,2 0,8 1,4 0,4 -2,3 -1,9 -1,6 -1,1 1,7 -1,0 1,1 0,8 -2,2 -2,0 -0,9 -3,5 -2,9 -2,5 -1,5 -1,9 0,3

0,2
0,2 0,2 0,0 5,3 0,1 0,1 2,2 3,1 1,3 0,1 0,0 1,1 0,4 2,0 1,3 0,0 1,5 10,1 1,4 0,0 6,8

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1.7 1,7 1,7 1,7 1,7 1,7

1,9
-1,3 0,5 0,8 0,3 -1,4 -1,2 -1,0 -0,6 1,0 -0,6 O, 0 0,5 -1,3 -1,2 -0,5 -2,1 -1,7 -1,5 -0,9 -1,1 0,2

27,00
13,66 20,10 26,49 18,76 14,21 18,05 18,76 20,78 23,28 18,58 13,72 19,71 18,02 23,14 16,25 23,23 29,11 33,01 25,02 30,37 26,26

119
119 119 125 125 130 133 135 132 132 129 125 125 125 120 127 127 132 132 137 140 135

01.07.2008
02.07.2008 03.07.2008 04.07.2008 07.07.2008 08.07.2008 09.07.2008

88,9
91,9 91,8 89,4 90,4 88,1 91,4

-3,5
3,3 "O, 1 -2,7 1,1 "2,5 3,5

0,1
1,7 -2,5 1,3 -1,3 2,4 -1,4

-3,3

0,1
3,7 5,2 2,2 1,3 6,7 1,5

1,7
1,7 1,7 1,7 1,7 1,7 1,7

3, S 0,1

-2,0
2,1 0,0

27,38
47,07 36,90 28,05 22,59 31,96 22.61

137
136 136 136 136 142 137

-2,5 1,3 -2,4 3,7

-1,5 0,8 -1,4 2,2

10,07.2008
11.07.2008 14.07.2008 15.07.2008 16,07.2008 17.07.2008 18.07.2008 21.07.2008 22.07.2008

90,6
88,3 69,4 86,4 86,1 94,2 98,4 99,5 94,5

-0,9
-2,6 1,3 -3,5 "0,4 8,6 4.3 1,0 -5,3

-3,0
1,0 -3,0 0,2 2,9 3,5 0,2 -0,2 3,6

-0,7
-2,4 1,5 -3,3 -0,2 8,8 4,5 1,2 -5,1

7,6
1,3 8,0 0,1 9,7 13,6 0,1 0,0 14,6

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

-0,4
"1,5 0,9 -2,0 -0,1 5,1 2,7 0,7 -3,0

22,55
35,59 20,27 29,06 41,35 47,10 47,69 29,07 31,57

137
140 135 140 143 138 138 138 138

23.07.2008
24.07.2008

101,2
102,6

6.7
1,4

-1,3
-4,1

6,8
1,6

1,3
15,4

1,7
1,7

4,1
0,9

38,67
28,62

131
131

25,07.2008
28.07.2008 29.07

98,4
95,7 94,3

-4,3
-2,8 -1,5

"2,0
0,1 2,4

-4,1
-2,6 -1,3

3,4
0,1 6,6

1,7
1,7 1,7

-2,5
-1,6 -0,8

35,22
20,81 28,03

131
131 131

30.07.2008
31.07.2008 01.08.2008 04.08.2008 05,08.2008 06.08.2008 07,08,2008 08.08.2008 11,08,2008 12.08.2008

99,2
97,8 99,9 99,3 104,1 96,5 95,3 95,3 100,0 99,7

5,0
. 1,4 2,1 "0,6 4,6 -7,8 -1,3 0,0 4,7 -0,3

0,0
-0,3 -0,6 4,5 0,4 0,1 1.0 1,4 -0,3 -3,4

5,1
-1,3 2,2 -0,4 4,8 -7,6 -1,1 0,2 4,9 -0,1

0,0
0,0 0,2 22,2 0,3 0,1 1,5 2,6 0,0 10,3

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

3,1
-0,8 1,3 -0,2 2,9 -4,6 -0,7 0,1 2,9 0,0

37,36
40,60 35,37 18,78 24,27 61,50 43,71 42,78 35,15 38,45

131
131 135 135 130 135 135 135 135 135

13.08.2008
14.08.2008 15.08.2008 18.08.2008 19.08.2008 20.08,2008 21.08.2008 22.08.2008 2608.2008 27.08,2008 28,08.2008 29 08 2008 01.09.2008 02.09.2008 03.09.2008 04,09.2008 05.09.2008 08,09.2008 09.09.2008

97,4
96.2 96,0 96,0 92,4 93,8 93,4 96,5 94,6 95,1 98.4

-2,4
-1,3 -0,1 0,0 -4,0 1,5 -0,4 3,2 -2,0 0,5 3,3 -0,2 0,4 2,6 -2,6 -0,3 -3,5 4,8 1,9

0,5
0,6 . 0,6 -4,2 0,8 -1,5 2,8 0,0 0,0 -0,9 2,7 0.2 -0,1 2,7 -1,2 -2,7 -2,3 0,0 5,1

-2,2
-1,1 0,1 0,2 -3,8 1,7 -0,2 3,4 -1,8 0,7 3,5 -0,1 0,6 2,8 -2,4 -0,1 -3,3 4,9 2,0

0,5
0,7 0,2 16,0 1,0 1,8 9,0 0,0 0,0 0,5 8,2 0.1 0,0 as 1,0 6,1 4,3 0,0 28,2

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,8

-1,3
-0,7 0,0 0,1 -2,3 1,0 -0,1 2,1 -1,1 0,4 2,1 0,0 0,3 1,6 -1,5 -0,1 -2,0 3,0 1,2 0,3 1,6 -1,5 -0,1 "2,0 3,0 1,2

20,24
48,06 42,35 23,64 30,11 40,56 19,49 21,63 23,36 20,12 25,59 20 80 13,25 26,62 19,57 32,93 24,74 12,67 26,08 7,61 7,61 7,61 7.61 7,61 7,61 7,61

135
135 135 135 135 135 135 133 135 135 134 133 133 123 125 130 133 123 128

98.1
98,5 101,1 98,5 98,2 94,9 99,6 101,5

10,09.2008
11.09.2008 12.09.2008 fi 15.09.2008

97,0
94,2 971 89,9

-4,7
-3,0 3,0 -8,0

-1,3
-1,4 0,5 -6,3

-4,5
-2,8 32 -7,8

1,1
1,5 0,5 37,9

1,7
1,7 17 1,8

-2,7
-1,7 1,9 "4,4

-2,7
-1,7 1,9 "4,4

44,94
25.76 47,56 43,70

7,61
7,61 7,61 7,61

132
132 142 167

16.09.2008
17.09.2008 18.09.2008 19.09.2008

85,3
84,5 77,2 85,7

-5,4
"0,9 -9,4 9,9

"3,4
-1,0 -1,1 11,0

"5,2
-0,7 -9,2 10,1

10,4
0,6 0,8 125,4

1,7
1,7 1,7 2,0

"3,1
-0,4 -5,5 4,9

-3,1
-0,4 -5,5 4,9

47,73
48,57 46,09 57,82

7,61
7,61 7,61 7,61

205
205 205 195

243,9 supermodd

Sum SARK mod. SARI, SARK

CARt

-8,3 -11,3 -16,2

2333,96 Without 5.9.2008 without 8,9.2008

and 19.9.2008

R mean return of BEINSUR during the estimation period -32,2 -0,19127 T is the number of days in the estimation period modifWartss 88 -42,2 irr 0,011364 sup. rmodifl i7ddl S standard err or of the OLS marke t regression -58,4 1,655075 square of S standard error of the OLS market model regression 2,7393 sum of (Rml-Rm squared) 243.3

CARt

.d

CARt

Appendix D: Formulas, Variables, Results and Data of the event study method

23.04.2008 24.04.2008 25.04.2008 28.04.2008 29.04.2008 30.04.2008 01.05.2008 02.05.2008 06.05.2008 07.05.2008 08.05.2008 09.05.2008 12.05.2008 13.05.2008 14.05.2008 15.05.2008 16.05.2008 19.05.2008 20.05.2008 21.05.2008 22.05.2008 23.05.2008 27.05.2008 28.05.2008 29.05.2008 30.05.2008 02.06.2008 03.06.2008

243,7 246,4 252,8 251,1 248,2 249,6 250.5 262,3 260,2 260,9 257,4 254,9 261,0 255,2 255,3 256,0 258,8 256,6 254,1 242,9 239,0 240,9 238,7 243,0 241,2 251,0 249,1 256,0

0,0 1,1 2,5 -0,7 -1,2 O, 6 0,4 4,5 -0,8 0,3 -1,4 -1,0 2,3 -2.2 0,0 0,3 1,1 -0,9 -1,0 -4,6 -1,6 0,8 -0,9 1,8 -0,8 3,9 -0,7 2,7

0.0 0,8 -1,4 1,5 2,6 -0,3 -1,7 0,2 -0,6 -1,1 0,0 -0,2 0,2 . 0,1 0,0 -0,2 -1,5 -2,2 -1,1 -0,9 -0,3 -0,2 1,8 0,7 0,0 -0,7 0,3 -O, 6

0.0 1,3 2,7 -0,5 -1,0 O, 8 0,6 4,7 -0,6 0,5 -1,2 -0,8 2,5 -2,1 0,2 0,5 1,3 -0,6 -0,8 -4,4 -1,4 1,0 -0,8 1,9 -0,6 4,1 -0,6 2,9

0.0 1,0 1,4 2,8 7,8 0.0 2,3 0,1 0,2 0,9 0.0 0,0 0,2 0,0 0,0 0,0 1,7 4,1 0,8 0,5 0,0 0,0 3,8 0,7 0,0 0,2 0,2 0,2

1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7

0.0 0,8 1,6 -0,3 -0,6 O, 5 0,4 2,8 -0,4 0,3 -0,7 -0,5 1,5 -1,2 0,1 0,3 0,8 -0,4 -0,5 -2,6 -0,9 0,6 -0,5 1,2 -0,3 2,5 -0,3 1,7

5,89 3,95 3,79 3,31 4,02 6,31 2,05 5,43 5,12 6,58 4,50 2,86 3,81 4,48 3,17 3,53 4,90 2,50 4,17 9,04 6,21 4,99 4,72 3,12 4,58 15,71 11,47 7,34

2,08

N/A

04.06.2008
05.06.2008 06.06.2008

266,4
266,2 251,1

3,9
-0,1 -6,0

-0,2
-2,5 -0,5

4,1
0,2 -5,8

0,0
5,3 0,1

1,7
1,7 1,7

2,5
0,1 -3,5

13,11
8,99 12,71

09.06.2008
10.06.2008 11.06.2008 12.06.2008 13.06.2008 16.06.2008 17.06.2008 18.06.2008 19.06.2008 20.06.2008 23.06.2008 24.06.2008 25.06.2008 26.06.2008

247,5
244,5 237,9 239,7 240.5 238,6 242,9 239,3 231,6 225,9 222,9 220,8 222,6 216.9

-1,5
-1,2 -2,8 0,7 0,3 -0,8 1,8 -1 -3,3 -2,5 -1,3 -1,0 0,8 -2,6

-0,5
-3,7 1,6 0,9 -0,4 0,0 -1,3 -0,9 -1,6 -1,3 -0,4 1,0 -3,4 -1,4

-1,3
-1,0 -2,6 0,9 0,5 -0,6 2,0 -1,3 -3,1 -2,3 -1,1 -0,8 1,1 -2,4

0,1
2,2 3,1 1,3 0,1 0,0 1,1 0,4 2,0 1,3 0,0 1,5 10,1 1,4

1,7
1,7 1,7 1,7 1,7 1.7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1.7

-O, 8
-0,6 -1,6 0,5 0,3 -0,4 1,2 -0,8 -1,9 -1,4 -0,7 -0,5 0,7 -1,4

5,35
7,40 9,09 16,21 4,55 10,48 5,09 7,58 11,11 11,18 4,27 10.71 4,00 10,06

27.06.2008
30.06.2008 DI 07.2008 . 03.07.2008 04.07.2008 07.07.2008

211.1
208,6 202,2

-2,8
-1,2 -3,2

-0,2
-2,8 0,1

-2,6
-0,9 -3,0

0,0
6,8 0,1

1,7
1,7 1,7

-1,5
-0,5 -1,8

7,76
5,07 9,05

02.07.2008

206,4
208,0 203,4 206,0

2,0
as -2,3 1,2

1,7
-2,5 1,3 -1,3

2.2
1,1 -2,1 1,5

3,7
5,2 2,2 1,3

1,7
1,7 1,7 1,7

1,3
0,6 -1,3 0,9

9,61
7,81 5,61 5,92

08.07.2008
09.07.2008 10.07.2008 11.07.2008 14.07.2008 15.07.2008 16.07.2008

207,1
214,6 209,9 202,8 206,5 198,2 196,1

0,6
3,5 -2,2 -3,5 3,8 -4,2 -1.1

2,4
-1,4 -3,0 1,0 -3,0 0,2 2,9

0,7
3,7 -2,0 -3,3 2,1 -4,0 -1,0

6,7
1,5 7,6 1,3 8,0 0,1 9,7

1,7
1,7 1,7 1,7 1,7 1,7 1,7

0,4
2,2 -1,2 -2,0 1,2 -2,4 -0,6

9,75
10,25 5,89 7,72 5,30 13,84 10,43

17.07.2008
18.07.2008 21.07.2008 22.07.2008 23.07 24.07.2008 25.07.2008

206,3
212,8 216,7 214,4 228,0 231,7 219.8

5,0
3,0 1,8 -1,1 6,0 1,6 -5,4

3,5
0,2 -0,2 3,6 -1,3 -4,1 -2,0

5,1
3,2 2,0 -1,0 6,2 1,9 -5.1

13,6
0,1 0,0 14,6 1,3 15,4 3,4

1,7
1,7 1,7 1,7 1,7 1,7 1,7

3,0
1,9 1,2 -0,6 3,7 1,1 -3,1

10,49
8,28 6,61 6,65 14,23 10,73 12,09

28.07.2008
29.07.2008 30.07.2008

215,7
213,8 223,3

.1 ,9
-0,9 4,3

0,1
2,4 0,0

-1,7
-0,8 4,4

0,1
6,6 0,0

1,7
1,7 1,7

-1,0
-0,5 2,7

4,39
5,83 5,75

31.07.2008
01.08.2008 04.08.2008 05.08.2008 06.08.2008

224,9
225,8 223,4 240,1 238,3

0,8
0,4 -1,0 7,0 -0,8

-0,3
-0,6 4,5 0,4 0.1

0,9
0,6 . 1,0 7,1 -0,6

0,0
0,2 22,2 0,3 0,1

1,7
1,7 1,7 1,7 1,7

0,6
0,3 . 0,6 4,3 -0,4

7.47
6,38 3,24 8,50 12,46

07.08.2008 CIS.08.2008
13.08.2008

243,1 248,8
250,7

1,2 3,1
0,7

1,0 1,4
-0,3

1,3 3,2
0,9

1,5 2,6
0,0

1,7 1,7
1,7

as 1.9
0,6

13,58 7,14
5,39

12.082008
23.0a. 200a 34.08.2008 15.08.2008 18.08.2008 19.08.2008 20.08 2008 . 21.08.2008 22.08.2008 26.08.2008 27.0 28.08 79 05 2008 01.09.2008 02.09.2008 03.09.2008 04.09.2008 05.09.2008 08.09.2008 09.09.2008 10.09.2008 31.09.2008 12.09.2008

249,7
242,0 241,8 242,8 239,9 228,7 229,4 231,4 241,8 241.4 242,6 251,4 251,8 252,1 258,8 252,9 245,8 234,0 258,3 255,3 244,2 240,3 239,9

-0,4
-3,1 -0.1 0,4 . 1,2 -4,9 0,3 0.8 4,3 -O, 1 0,5 3,5 0,2 O, 1 2,6 -2,4 -2,9 -5,0 9,4 -1,2 -4,6 -1.6 -0,2

-3,4
0,5 0,6

-0,1
-3,0 0,1 0,6 -0,9 -4,7 0,5 0,9 4,5 0,0 0,7 3,6 0,3 0,3 2,7 -2,1 . 2,6 -4,8 9,6 -1.1 -4,3 -1,4 0,0

10,3
0,5 0,7 0,2 16,0 1,0 1,8 9,0 0,0 0,0 0,5 8,2 0.1 0.0 8,5 1,0 6,1 4,3 0,0 28,2 1,1 1,5 0,5

1,7
1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1,7 1.7 1,7 1.7 1,7 1.7 1,7 3,7 1,7 1.8 1,7 1,7 17

-0.1
-1,8 0,0 0,4 -0,5 -2,8 0,3 0.6 2,7 0,0 0,4 2,3 0,2 0,2 1,6 -1,3 -1,6 -2,8 5,8 -0.6 -2,6 -O, 8 0,0

6,76
7,17 4,84 4,44 3,18 5,78 4,70 5,83 6,85 6,32 4,79 6,22 9 53 3,65 6,20 5,54 8,99 9,26 5,12 10,62 10,11 5,89 5,10

-0,6 -4,2 0,8 -1,5 2,8 0.0 0,0 -0,9 2,7 0.2 -0,1 2,7 -1,2 -2,7 -2,3 0,0 5,1 -1,3 -3,4 0,5

0,2 1,6 -1,3 -1,6 -2,8 5,8 -0.6 -2.6 -0,8 0,0

2,08 2,08 2,08 2,08 2,08 2,08 2,08 2,08 2,08 2,08

15092008
16.09.2008 17.09.2008

232,4
230,5 236,5

-3,2

-O, 8 2,5

-6,3
-3,4 -1,0 11,0

-2,8
-0,5 2,7 11,3

37,9
10,4 0,6

1.8
1,7 1,7

-1,6
-0.3 1,6 -0,3 1,6

10,49
18,73 14,19

2,08
2,08 2,08

18.09.2008
19.09.2008

230,6
260,4

11,4

-2.6

-1,1

-2,4

0,8
125,4

1,7
2,0

-1,4
5.5

-1,4
5,5

10,39
22,92

2,08
2,08

243,9 supermodit

Sum SARk mod . SARI SAR k CARL

1,7 -4,1 -9,6

637,91 Without 5.9.2008 Without 6.9.2008

and 19.9.2008

R mean return of BEINSUR during the estimation 6,5 period -0,19127 T is the number of days in the estimation period modifiziert.. 86 -15.3 1R 0,011364 sup. mtodtfi. S standard error of the OLS market37igl regress ion . 34,7 1,653148 square of S standard error of the OLS market mod el regression 2,7329 sum of (Rmt-R m squared) 243.3

CARt

d CARt

Appendix D:

Formulas, Variables, Results and Data of the event method

$6 .4

Date
25.04 2008 28.04.2008 29.04.2008 30.04.2008 02,05.2008 05.05,2008 06.05.2008 07.05.2008 08.05.2008

P, I. 'Data on th. -33,4872 33,7627 33,9913 34,4694 35,7963 35,7684 36,0284 32,9286 33,4893

share,

P_
h. rig.
0 0,8 0,7 1,4 3,7 -0,1 0,7 -9,4 1,7

Rh.. 9.1.
0 0,8 -1,4 1,5 2,6 -0,3 -2,7 0,2 -0,6

AR,, A b. -I
0 0,6 1,3 0,9 2,8 0.2 1,5 -9,4 2,0

#tnnv""e . -Re R., SD,,

-. an
0,0 1,0 1,4 2,8 7,8 0,0 2,3 0,1 0,2

st andard
1,4 1,4 1,4 1,4 1,4 1.4 1.4 1,4 1 4 , 1 4 , 1 4 , 1,4 1.4 1 4 , 1 4 , 1,4 1,4 1,4 1,4 1,4 1,4 1.4 1,4

SAR =ARS I SD.,

O 0,4 0,9 0,7 2,0 0 1 , 1 1 , -6 , 6 1 4 , 1 0 , 0 5 , 0 1 , 0 7 , -0 , 1 1 2 , 0 3 , 0,5 0,4 0,6 -1,2 0,2 -0,1 0,3

uMSAR k

traded
0,43 0 67 , 0 60 , 0 66 , 1 00 , 0 66 , 1,60 1,24 1,16

Trade
0 21 ,

Sp r*ads
47 44 4 6 47 43 43 48 47 51

09.05.2008
12,05.2008 13.05,2008 14.05.2008 15.05.2008 16.05.2008 19.05.2008 20.05,2008 2105200 22,05,2008 23,05.2008 26,05.2008 27.05.2008 28.05.2008

33,7938
34,0057 33,9831 34,3273 34,2112 34,7429 34,8396 34,8289 34,6845 34,8069 34,0657 34,1066 33,9759 34,3112

0,9
0,6 -0,1 1,0 -0,3 1,5 0,3 0,0 -0,4 0,4 -2,2 O, 3 -0,4 1,0

-1,1
-0,2 0,2

1,5
0,8 0,1 1,0 -0,2 1,6 0,5 0,7 0,5 0,9 -1,7 0,3 -0,2 0,4

0,9
0,0 0,0 0,2 0,0 0,0 0,0 1,7 4,1 0,8 0,5 0,0 0,0 3,8

O. 0

0,87
0,24 0 68 , 0,52 0,32 0.64 0 39 , 0 52 , 0 52 . 0 64 , 0 82 , 0 20 , 0 80 , 0 62 , 0 70 , 2 66 , 0 70 , 0 43 . 0 79 , 0 74 , 0 49 , 0 54 , 0 89 , 0 80 , 0 70 , 0 42 , 0,21 36 , 48 , 36 , 82 , 47 , 0 93 , 0 85 , 0 91 , 0,66 0 54 , 0,62 1.16 1,14 0 0 0 0 0

51
50 48 50 49 47 43 47 51 59 66 6G 68 60

-0,1 O, 0 -0,2 -2,2 -1.1 -0,9 -0,3 -0,2 1,8

29.05.2008
30.05.2008 02.06.2008 03.06.2008 04. OG, 2008 05.06.2008 06 06.2008 09.06.2008 10.06.2008 11 06.200a 12,06,2008 13.06.2008 16.0"i 20011 . 17.06,2008 18.06.2008 39.06.2008 20.06.2008 23.06.2008 24.06.2008 25.06.2008 26.06.2008 27.06.2008 30.06.2008 01.07.2008 02.07.2008 03.07.2008

34,8196
35,4338 35,5975 35,3337 34,8125 35,0679 35,1922 34,9321 33,9431 33,8741 33,954 34,6737 34,4776 34,7556 34,1682 34,0789 34,1834 33,2044 33,1157 32,5472 31,8316 30,8743 31,1238 30,6645 32,1022 32,1795

1,5
1,7 0,5 -0,7 -1,5 0,7 0,4 -0,7 -2,9 -0,2 0,2 2,1 -0,6 0,8 -1,7 -0,3 0,3 -2,9 -0,3 -1.7 -2,2 -3,1 0,8 -1,5 4,5 0,2

0,7
0,0 -0,7 0,3 -0,6 -0,2 -2,5 -0,5 -0,5 -1,7 1,6 0,9 -0,4 0,0 -1,3 -0,9 -1,6 -1,3 -0,4 1.0 . 3,4 -1,4 -0,2 -2,8 0,1 1,7

1,3
1,9 0,8 -0,7 -1,1 0,9 1,4 -0,4 -2,6 0,5 -0,2 1,8 -0,3 0,9 -1,1 0,2 1,0 -2,3 0,0 -2,0 -0,9 -2,5 1,0 -0,3 4,6 -0,3

0,7
0,0 0,2 0,2 0,2 0,0 5,3 0,1 0,1 2,2 3,1 1,3 0,1 0,0 1,1 0,4 2,0 1,3 0,0 IN 10,1 1,4 0,0 6,8 0,1 3,7

1,4
1,4 1,4 1,4 1,4 1,4 1,4 1,4 1.4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4

0,9
1,3 0,6 -0,5 -0,8 0,7 1,0 -0,3 -1,8 0,4 -0,2 1,3 -0,2 0,7 -0,8 0,1 0,7 -1,6 0,0 -1 , 4 -0,6 -1,7 0,7 -0.2 3,2 -0,2

57
55 58 60 62 63 66 68 68 64 63 59 58 56 59 62 68 67 73 67 69 72 69 73 73 73

04.07.2008
07.07.2008 08.07.2008 09.07.2008 10.07.2008 11.07,2008 14 07.2008 15.07.2008 16.07.2008 17.07.2008 18,07.2008 21.07.2008 22.07.2008 23.07.2008 24.07.2008 25.07.2008 28.07.2008 29.07.2008

31,8296
32,0047 31,3968 32,2998 31,8003 31,2535 30,8363 29,8821 29,5379 30,1589 30,9091 31,4598 31,3137 32,5041 32,4326 28,8549 29,7168 29,766

-1,1
0,5 -1,9 2,8 -1,6 -1,7 -1,4 -3,2 2,1 2,4 1,8 -0,5 3,7 -0,2 -12,4 2,9 0,2

-2,5
1,3 -1,3 2,4 -1,4 -3,0 1,0 -3,0 0,2 2,9 3,5 0,2 -0,2 3,6 -1,3 -4,1 -2,0 0,1

0,0
0,2 -1,3 2,0 -0,9 -0,5 -1,6 -1,9 -1,1 1,1 1,2 1,8 -0,3 2,4 0,4 -10,7 3,8 0,2

5,2
2,2 1,3 6,7 1,5 7,6 1,3 8,0 0,1 9,7 13,6 0,1 0,0 14,6 1.3 15,4 3,4 0,1

1,4
1,4 1,4 1,4 1,4 1,4 1.4 1,4 1,4 1.4 1,4 1,4 1,4 1.5 1.4 1,5 1,4 1,4

0.0
0,1 -0,9 1,4 -0,6 -0,4 -1.1 -1,3 -0,8 0,7 0,8 1,3 -0,2 1,7 0,3 -7,4 2,7 0,2

0,35
0,49 0,49 0,39 0,49 0,48 0,61 0,74 0,73 0,78 0,60 0,51 0,78 0,94 0 59 , 4,07 0,79 0,58

73
72 77 71 72 73 69 72 70 64 63 60 61 57 57 59 58 58

30.07,2008
31.07.2008 01,08.2008 04,08.2008 05.08.2008 06.08.2008 07.08.2008 08.08.2008 11.08.2008 12.08.2008 13.08.2008 14.08.2008 15.08.2008 18,08.2008 19.08.2008 20.08.2008 21.08.2008 22.08.2008

30,0472
30,6855 30,2977 29,9397 30,8306 31,2377 30,4268 29,7133 29,7539 29,9498 28,8485 28,7722 28,9092 28,6435 28,3545 28,2095 28,1558 29,1079

0,9
2,1 -1,3 -1,2 2,9 1,3 -2,7 -2,4 0,1 0,7 . 3,8 -0,3 0,5 . 0,9 -1,0 -0,5 -0,2 3,3

2,4
0,0 -0,3 -0,6 4,5 0,4 0,1 1,0 1,4 -0,3 -3,4 0,5 0.6 -0,6 -4,2 0,8 -1,5 2,8

0,1
2,2 -1,1 -0,8 1,3 1,3 -2,6 -2,7 -0.3 0,9 -2,4 -0,3 0,4 -0,6 0,7 -0,7 O, s 2,3

G,6
0,0 0,0 0,2 22,2 0,3 0,1 1,5 2,6 0,0 10,3 0,5 0,7 0,2 16,0 1,0 1,8 9,0

1,4
1,4 1,4 1.4 1,5 1,4 1,4 1,4 1,4 1,4 1,4 1.4 1.4 1.4 1,5 1,4 1,4 1,4

0,1
1,6 -0,7 -0,6 0,9 0,9 -1,8 -1,9 -0,2 0,6 -1,7 -0,2 0,2 -0,4 0 5 . -0,5 0,4 1 6 , 0 7 , -1 , 0 -0 , 9 0 7 , 1 0 , -0 , 8 1 3 , -0 , 3 -1 , 0 .1 , 6 3 0 , -1 , 2 -2 . 1 -1 , 1 -0,9 -1,5 -1,8 -1,0

0,60
0,67 0 36 , 0 45 , 0 47 , 0 57 , 0 79 , 0 82 , 0 98 , 0 55 , 1 08 , 0 57 , 0 54 , 0 40 , 0 67 . 0 49 , 0 80 , 0 63 , 0 38 0,42 0,39 0.39 0 45 0,32 0,66 0,69 0,80 0,63 0,62 0,61 0,96 0,68 0,60
r .. r.

59
61 64 65 61 62 63 64 61 59 60 58 58 58 64 63 65 61 5 , 1 6 G3,5 65

25.08.2008
26.08.2008 27.08.2008 28.08.2008 29 O8 2008 01.09.2008 02.09.2008 03.09.2008 04,09.2008 05.09,2008 08.09.2008 09.09,2008 10.09.2008 11,09.2008 17 no 70n8 1509.2008 16.09.2008 17 09.2008

29,3663
28,9235 28,4478 28,9804 29,3695 29,0026 29,839 29,5599 28,842 27,9496 29,1284 29,1511 28,1422 27,5379 77.2f+
wr-

0,9
. 1,5 -1,7 1,8 1,3 -1,3 2,8 -0,9 -2,5 -3,2 4,0 0,1 -3,6 -2,2 -12 -4,8 -4,1 -1,9

0,0
0,0 -0,9 2,7 0.2 -0,1 2,7 -1,2 -2,7 -2,3 0,0 5,1 -1,3 -1.4 0 5 , -6,3 -3,4 -1,0 11,0

1,0
-1,4 -1,2 0,9 1,4 -1,1 1,9 . 0,4 -1,4 -2,2 4,2 -1,7 -3,0 -1.5 .1 , 3 -2,3 -2,7 -1,4

0,0
0,0 0,5 8,2 0.1 0,0 8,5 1,0 6,1 4,3 0,0 28,2 1,1 1.5 0 5 , 37,9 10,4 0,6

1,4
1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,4 1,5 1 4 . 1,4 1 4 , 1,5 1,4 1,4

,5

-0 , 8 1 3 , -0 , 3 -1 , 0 -1 , 6 3 0 , -1 , 2 - 2 ,1 -1 , 1 -0,9 -1 , 5 -1 , 8 -1 , 0 -1 , 2 16

0,21 0,21 0,21 0,21 0.21 0,21 0,21 0,21 0,21 021
K

63 62 62 59 62 66 69 61 64 63 63 68 91 101 95

25,9626 24,946 24,4763

18,09.2008
19 09.2008

23,9431
25,7083

-2,2
6,9

-1,1

-1,7
2,8

0,8
125,4

1,4
1,7

-1,2
1.6

1,08 1,40 0 99 , 0 91

0,21 0,21 0,21

243,9

Sum SARk mod. SARI supermoditSARk CA Rt

8,5 -11,5 -13,1

1 9 C' 63,07 Without 5.9.2008 Without 8.9.2008

0,21
0,21

85
75

and 19,9.2008

R mean return of BEINSUR during the estimation period -33,0 -0.19127 T Is the number of days In the estimation period modlflzl. rtes CARt 88 -42.9 1/1 0.011364 supormodifl. d CARt S standard error of the O LS marke +7,3I regression 2 -47 , 1,401592 square of S sta ndard error of the OLS market model regression 1,9645 sum of (Rmt-Rm squared) 243.3

25.04.2008 28.04.2008 29.04.2008 30.04.2008 02.05.2008 05.05.2008 06.05.2008 07.05.2008 08.05.2008 09.05.2008 12.05.2008 13.05.2008 14.05.2008 15.05.2008 16.05.2008 19.05.2008 20.05.2008 21.05.2008 22.05.2008 23.05.2008 26.05.2008

128.99 130,07 128,31 130,25 133,73 133,28 131,03 131,27 130,45 128,98 128,93 128,65 128.96 125,84 128,87 128,63 126.75 124,01 122,71 121,58 121,23

0 0,83 -1,37 1,49 2,60 -0,34 -1,72 0,18 -0,63 -1,14 -0,04 -0,22 0,24 -0,09 0,02 -0,19 -1,48 -2,21 -1,06 -0,93 -0,29

Appendix D: Formulas, Variables, Results and Data of the event study method

27.05.2008
28.05.2008

120,98
123,16

-0,21
1.77

29.05.2008
30.05.2008 02.06.2008 03.06.2008 04.06.2008 05.06.2008 06.06.2008 09.06.2008 10.06.2008

123,97
123,97 123,12 123,43 122,66 122,42 119,45 118,83 118,2

0,65
0,00 -0,69 0,25 -0,63 -0,20 -2,49 -0,52 -0,53

11.06.2008
12.06.2008 13.06.2008 16.06.2008 17.06.2008 18.06.2008 19.06.2008

116,27
118.14 119,27 118,74 118,74 117,27 116,28

-1.66
1,58 0,95 -0,45 0,00 -1,25 -0.85

20.06.2008
23.06.2008 24.06.2008 25.06.2008 26.06.2008 27.06.2008 30.06.2008 01.07.2008 02.07.2008 03.07.2008 04.07.2008 07.07.2008 08.07.2008 09.07.2008 10.07.2008 11.07.2008 14.07.2008 15.07.2008 16.07.2008 17.07.2008 18.07.2008 21.07.2008 22.07.2008

114.46
112,98 112,56 113,74 110,04 108,56 108,29 105,35 105,42 107,27 104.69 106,05 104,65 107,23 105,72 102,69 103,68 100,64 100,81 103,85 107,62 107,81 107,62

-1,59
-1,31 -0,37 1,04 -3,36 -1,36 -0,25 -2,79 0,07 1.72 -2,46 1,28 -1,34 2,41 -1,43 -2.95 0,95 -3,02 0,17 2.93 3,50 0,18 -0,18

23.07.2008
24.07.2008 25.07.2008

111,68
110,22 105,86

3,64
-1,32 -4,12

28.07.2008
29.07.2008

103,76
103,89

-2,02
0,13

30.07.2008
31.07.2008 01.08.2008 04.08.2008 05.08.2008 06.08.2008 07.08.2008 08.08.2008 11.08.2008 12.08.2008 13.08.2008 14.08.2008 15.08.2008 18.08.2008 19.08.2008 20.08.2008 21.08.2008 22.08.2008

106,43
106,38 106,08 105.44 110,43 110,85 110,92 112,06 113,68 113,3 109,57 110,16 110,87 110,18 105,75 106,63 105,03 108,06

2,39
-0,05 -0,28 -0.61 4,52 0,38 0,06 1.02 1,43 -0,34 -3,40 0,54 0,64 -0,63 -4.19 0,83 -1,52 2,80

25.08.2008
26.08.2008 27.08.2008 28.08.2008 29.08.2008 01.09.2008 02.09.2008 03.09.2008 04.09.2008 05.09.2008 08.09.2008 09.09.2008 10.09.2008 11.09.2008 12-09.2008 15.09.2008 16.09.2008 17.09.2008 18.09.2008 19.09.2008

108,01
108,04 107,05 109,98 110,15 110,08 113.16 111,83 108,93 106.51 106,51 112,26 110,87 109,34 109.91 103,35 99,94 98,99 97.91 110,02

-0,05
0,03 -0,92 2,66 0,15 -0,06 2.72 -1,19 -2,66 -2,27 0,00 5,12 -1.25 -1,40 0.52 -6,35 -3,41 -0,96 -1,10 11.01

374

Appendix E: Document for

measuring

Modified Equity-ratio

Analysis

Research period: 1.1.2008 to 31.12.2008

the modified equity-ratio

Determination of the modified equity-ratio as of January Ist, 2008 Equity stated in the financial statements as of 31.12.2007 excluding reserves for currency translation excluding own shares for share based payment schemes and buy back programms excluding insurance related changes of equity (pension plans) and unspecified reserves excluding dividends paid and distributions to shareholders excluding issues of new share capital excluding for tax effects
excluding for transactions among subsiduaries excluding shadow accounting

excluding deeply subordinated debt Modified equity as of 31.12.2007 Total assets as of 31.12.2007 Modified equity-ratio as of 31.12.2007 B. Modified equity as of 1.1.2008 (identical to modified equity as of 31.12.2007) excluding reserves for currency translation excluding own shares for share based payment schemes and buy back programms excluding insurance related changes of equity (pension plans) and unspecified reserves excluding dividends paid and distributions to shareholders excluding issues of new share capital excluding for tax effects excluding for transactions among subsiduaries excluding shadow accounting excluding deeply subordinated debt Not excluded: unrealized gains and losses from fair market value measurement of Financial instruments net income of the period 2008 Modified equity as of 31.12.2008 Total assets as of 31.12.2008 Modified equity-ratio as of 31.12.2008 C. Change of modified equity-ratio due to the efQjf

the financial crisis in percent

Modified equity as of 31.12.2008 - modified equity as of 31.12.2007 / modified equity as of 31.12.2008

Appendix F: Clustering listed European insurance groups 2007

Analysis 2007 data

N N Z

u
A C

C C O t C U m L 0 C
A M A 0 7 P O C O cl C A C U

* Reihe l ,

-10
-20

-30

-40

Risk Disclosure Performance in group financial statements 2007

376

Appendix G: Clustering European insurance groups 2008

Analysis of data 2008

30

u
C

20

CC L m 0o 10

C
a

-10

, -20 c
V
(

-4I!

Risk Disclosure Performance in the group financial statements 2008

377

Appendix H: Guidelines for structured interviews with experts Guideline for a structured interview

Thank you for participating in this interview. Its focus is to explain, question and or verify the statistical results of the research performed by Ansgar Vlker about the risk disclosure of international insurance groups and the capital market reaction. This interview is structured using questions about the three variables and their relationship that are analyzed in this research project. 1. Negative effects on equity ratios as a result of the financial crisis 2007-2009 2. Risk disclosure in group financial statements as of 2007 and 2008

3. Reaction of the capital market in a moment of financial distress Data from following international insurance groups have been used: Allianz, Aegon, Aviva, AXA, CNP Assurance, Generali, Hannover Rck, ING, Legal&General, MunichRe, Old Mutual, Standard Life, Zurich
The interview can proceed in English or German, person to person, by phone or in writing. The English manuscript of the interview will be sent to you in draft form. Only content that is agreed upon will be published. You can opt for anonymity in the research paper. Effect on equity ratio: " Do you think that the insurance industry has been hit hard by the financial crisis in comparison to other industries?

"
"

Which one of the thirteen insurance groups analyzed has been affected most negatively by the crisis?
Are you aware of confounding negative effects that lowered the equity ratio of the analyzed insurance groups and that were not based on impairments or lower market valuation of financial instruments? Can you name international insurance groups that have received financial aid from governments during the financial crisis?

"

Risk disclosure behaviour: insurance how the Did companies have been affected by picture about you get a clear " the crisis by reading their group financial statements? Where you able to predict the effect the crisis had on an insurance group based on those annual information? What information about the insurance group that proved important later on did you learn from the group financial statements first? " Are you supportive of the theory that timely and extended disclosure by international insurance groups increases trust that investors have in that group? " Do you think that managers in the insurance industry can influence the extent of risk disclosure of the groups they lead in the financial statements? What might restrict them? " Is it your impression that the quality of risk disclosure about troublesome financial instruments (such as: ABS, CDO, RMBS, CMBS) has improved as the crisis proceeded? Capital market functionality: " Are you convinced about the ability of the capital market to include all information available in the share price? Do you support the theory of an efficient capital market in setting share prices? " Do you think that reliable conclusions can be drawn from the research method of measuring the capital market reactions on single event dates (Event study method that measures the deviation of actual share prices from predicted share prices that are

378

calculated based on historic data of an industry share index over a short period of time)? In your opinion can the near insolvency of AIG on September 17`h,2008 be considered the most threatening situation for international insurance groups during the financial crisis? Do other situations come to your mind? Are you surprised about the research result that the capital market detected those international insurance companies whose equity ratio was reduced most by the financial crisis? Can you explain why the capital market detected them before they disclosed detailed information about impairments and lower market valuation about critical financial instruments in their financial statements 2008? Overall questions: " According to your judgement: What are the international insurance groups that have been affected most negatively by the financial crisis - which ones disclosed their risk timely and extensively, which ones didn't? " What has to be done in order to allow private investors and analysts to be better informed about crisis relevant risk factors of insurance companies? insurance international Do think that groups are as reluctant to disclose "sensitive" you " information about other topics as they have been reluctant to disclose risk information about "toxic" financial instruments that they hold during this crisis? the discussion this Do believe the might affect of research results ongoing you about " fair value measurement/full fair value accounting in the insurance industry?

Thank you for your answers. Please state your name, job title, business responsibility or your link to the researchtopic, or opt for anonymity.
Do not hesitate to contact me via mail a.voelker(o)surrey. ac. uk or phone 01605254139. For organizational questions or ethical concerns please contact Professor Gilbert at d. ciilbert@surrey. ac. uk or Professor Chen at j. Chen surrey. ac. uk at the university of Surrey. . Ansgar Voelker (DBA-Student

379

380

Appendix la: Interview Anonymous (2010) Structured interview

Anonymous from a leading German investment company. The name and company cannot be disclosed due to internal governance regulations. Interview taken on December 27,2010 by Ansgar Vlker.

Effect on equity ratio: " Do you think that the insurance industry has been hit hard by the financial crisis in comparison to other industries? The insurance industry got through the financial crisis quite well. Single listed European insurance groups with banking subsidiaries or business in the US faced challenges. However, a key element of the crisis - selling credit default swaps - is not a core business of insurance companies.
The share price of listed European insurance groups suffered as a result of the financial crisis and the share price level is still lower than before the crisis.

"

Which one of the thirteen insurance groups analyzed has been affected most negatively by the crisis?

AIG and SwissRe suffered most from the financial crisis because they have sold credit default swaps. AEGON sold variable annuities in the US market - these are life insurance products which are backed by US-investments. These investments were only partially hedged against market risk. As a result AEGON had to cover losses that arose from the unhedged part. Allianz owned Dresdner Bank at the beginning of the crisis and suffered losses from their US-exposure.

Are you aware of confounding negative effects that lowered the equity ratio of the analyzed insurance groups and that were not based on impairments or lower market valuation of financial instruments? Listed European insurance groups wrote down their corporate bonds due to an increase in spreads that lowered their fair values. This put the equity ratio of insurance companies under pressure. Single insurance groups with banking subsidiaries like Allianz and ING made losses in the baking segment that lowered their equity ratio additionally.
" Can you name international insurance groups that have received financial aid from governments during the financial crisis?

AEGON and ING received state subsidies. SwissRe (not included in the group of accounts because it reports according to US-GAAP, not IFRS) received financial support by Berkshire Hathaway an institutional investor that increased its capital, signed a reinsurance contract and bought a convertible bond. Risk disclosure behaviour:
" Did you get a clear picture about how the insurance companies have been affected by the crisis by reading their group financial statements? 381

The disclosure of financial risk in the annual financial statements of listed European insurance groups is insufficient and non-specific. I would prefer risk information to be quantitative,specified to the situation of the company and more extensive.
" Where you able to predict the effect the crisis had on an insurance group based on those annual information? What information about the insurance group that proved important later on did you learn from the group financial statements first?

Yes, it was possible to evaluate the impact of the crisis on the insurance groups. In order to do this I have used the equity movement tables, the disclosure of investment fair value and of deferred acquisition cost in the notes as additional information for my forecasts. " Are you supportive of the theory that timely and extended disclosure by international insurance groups increases trust that investors have in that group?

Yes, I believe that timely and extensive risk disclosure increases trust of investors. Right now this disclosure is not sufficient and should be timely and extensive.

"

Do you think that managers in the insurance industry can influence the extent of risk disclosure of the groups they lead in the financial statements? What might restrict them?

The management is hesitating to present the risk situation of their company. It prefers to present chances and success stories instead of disclosing risks.

Is it your impression that the quality of risk disclosure about troublesome financial instruments (such as: ABS, CDO, RMBS, CMBS) has improved as the crisis proceeded?
There is a positive development in disclosure about crisis related financial instruments. Disclosure about them has been more detailed and with more quantitative information in 2008 and 2009.

Capital market functionality: the include to the Are ability of capital market all you about convinced " information available in the share price? Do you support the theory of an efficient capital market in setting share prices?
In general the market is always right. However, in this crisis a few phenomena appeared: Shares of listed insurance groups suffered unduly. The capital market overreacted which can be explained by the complexity of the insurance business model and the interdependencies within the insurance market. As a result the capital market perceived too high a risk - aside from US investments the insurance market continued to perform.

"

Do you think that reliable conclusions can be drawn from the research method of measuring the capital market reactions on single event dates (Event study method that measures the deviation of actual share prices from predicted share prices that are calculated based on historic data of an industry share index over a short period of time)?
382

This financial crisis has seen some extraordinary share price reactions. Three examples: The share price of AEGON increased after a rights issue has been announced. Such an announcement is typically followed by falling share prices. The announcement of a takeover of AIGA by MetLife has increased its share price, although it tends to fall after such an announcement. The presentation of negative quarterly results of ING has been followed by a share price increase. All these share price reactions are counter-intuitive and would need further research to be explained. In your opinion can the near insolvency of AIG on September 17th, 2008 be considered the most threatening situation for international insurance groups during the financial crisis? Do other situations come to your mind? AIG has been the biggest test of the insurance industry within the last decade. It has been an unanticipated one-time disaster. Another test of trust has been the recapitalization of ING by the Dutch government. Owner of saving accounts issued by the bank branch of this insurance group always assumed their savings to be safe. They were shocked by the need to increase INGs share capital. (Explanation: The owners of saving accounts are concentrated in Germany at the ING Diba) " Are you surprised about the research result that the capital market detected those international insurance companies whose equity ratio was reduced most by the financial crisis? Can you explain why the capital market detected them before they disclosed detailed information about impairments and lower market valuation about critical financial instruments in their financial statements 2008?

I am not surprised that the capital market developed according to the effect the financial crisis had on the European insurance groups. It has been public knowledge that AIG had a credit default swap exposure or that Generali did not have investments in the US. When it became apparent that credit default swaps and portfolio based financial instruments had been the drivers of the financial crisis during 2008, the capital market reacted based on this knowledge. The publication of group financial statements in the first half of 2009 has been a nonevent. It rarely happens that data from financial statements surprise the capital market. Investor days and conference calls provide additional information. However, insurance groups are prohibited to disclose market relevant information to a small group of investors only. They must be disclosed to the whole market via ad-hoc announcements. Overall questions: international insurance According the to judgement: What groups that are your " have been affected most negatively by the financial crisis - which ones disclosed their risk timely and extensively, which ones did not? ING has been significantly affected by the financial crisis. However this company has disclosed a lot of information. Its annual financial statements exceeded 300 pages and their quarterly financial statements 260 pages. Allianz made an effort to be transparent about their risk exposure but they could have done more. Standard Life is not covered by our company.

MunichRe and Zurich have been fully transparent in their exposure during the financial crisis. AXA has been transparent but hesitated to disclose risk information as the crisis continued.
383

"

What has to be done in order to allow private investors and analysts to be better informed about crisis relevant risk factors of insurance companies?

There should be a level-playing field approach. Institutional and private investors shall rely on the same kind of information.
" Do you think that international insurance groups are as reluctant to disclose "sensitive" information about other topics as they have been reluctant to disclose risk information about "toxic" financial instruments that they hold during this crisis?

Listed insurance companies trade at a discount in comparison to other industries because investors perceive their accounting as incomparable and complex. Thus managers hesitate to disclose information that would further unsettle investors. " Do you believe the results of this research might affect the ongoing discussion about fair value measurement/full fair value accounting in the insurance industry?

Full fair value of insurance groups would be based on estimates due to the lack of markets for insurance liabilities. Updating these estimates would lead to earning fluctuations between quarterly financial statements. This would run counter to the long term business orientation of insurance groups.

384

Appendix Ib: Interview Noack (2010) Structured interview with Thomas Noack from WestLB, working as a Senior Equity Analysts (Director) on December 22,2010

Effect on equity ratio: industry has insurance been hit hard by the financial crisis Do think that the you " in comparison to other industries?
Yes the insurance industry has been hit harder by the financial crisis than other industries. Although banks were affected directly and had to balance bigger financial losses, insurance companies as significant asset managers were affected by the financial crisis indirectly and on a long lasting basis. During the crisis federal reserve banks increased liquidity in the market. This market influence lowered interest rates. This causes a decline in the return on assets that insurance companies use to pay for customer claims. " Which one of the thirteen insurance groups analyzed has been affected most negatively by the crisis?

Among the analyzed companies AEGON and ING have been hit hardest by the financial crisis, and they received governmental subsidies to cover their losses. Both insurance groups were engaged in the US-market and invested in mortgage-based financial instruments there. Aside from the group of analysis AIG and SwissRe suffered most from the crisis, because these groups both invested in mortgage-based financial instruments and sold Credit Default Swaps - although each group on a different scale. (Explanation: Both insurance groups are not analyzed in this research study, because they apply USaccounting standards and do not comply with IFRS 7)

Are you aware of confounding negative effects that lowered the equity ratio of the analyzed insurance groups and that were not based on impairments or lower market valuation of financial instruments? The equity ration of only AIG and SwissRe has been lowered directly by losses from Credit Default Swaps. The equity ratio of all analyzed European insurance groups have been affected indirectly. Defaults of corporate bonds issuers and higher risk spreads on governmental bonds caused the fair value of these assets to decline resulting in lower equity ratios.
" Can you name international insurance groups that have received financial aid from governments during the financial crisis?

Among the analyzed companies ING and AEGON received governmental subsidies. Additionally SNS (Explanation: A smaller insurance group in the Netherlands and Belgium) received money form the state, whereas SwissRe received money from Warren Buffet, an institutional investor.
Risk disclosure behavior: " Did you get a clear picture about how the insurance companies have been affected by the crisis by reading their group financial statements? 385

The financial crisis has changed the way European insurance groups communicate with analysts. There is a tendency for explicit information disclosure during the fiscal year. In 2009 and 2010 detailed information about the embedded value, the net asset value and the duration of investment categories have been disclosed by listed insurance groups. Especially the assumption that influence the embedded value and explicit information about asset allocation such as the character and extent of exposure in investments in Greece have been timely communicated to analysts. This is important for us, because our judgement about the value of a company differ when an insurance group is either invested in a Greek insurance subsidiary or is heavily invested in Greek sovereign bonds. The press coverage and resulting public pressure forced listed insurance groups to disclose detailed information to analysts. Just remember when questions about the exposure to structured investment instruments were followed by questions about their corporate bonds exposure and finally their sovereign bonds exposure. This kind of explicit and timely information has not been available during 2007 and 2008.

"

Where you able to predict the effect the crisis had on an insurance group based on those annual information? What information about the insurance group that proved important later on did you learn from the group financial statements first?

n.a.
" Are you supportive of the theory that timely and extended disclosure by international insurance groups increases trust that investors have in that group?

Yes, I believe that timely and extended disclosure creates trust in investors. Investors don't like suprise. They can - up to a certain personal limit - cope with bad news as long as they are prepared for them and appreciate a long term relationship. Investors lost trust in SwissRe when it delayed bad news in 2007 so that the management had to go. Insurance groups have to swallow the pill and communicate problems and failures because they will become public knowledge sooner or later. " Do you think that managers in the insurance industry can influence the extent of risk disclosure of the groups they lead in the financial statements? What might restrict them?

The management has to fulfill all accounting requirements. They can exceed them with discretionary disclosure. However the timing of disclosure has proved to be more important during the crisis. So disclosure of information during the fiscal year and not primarily in the financial statements is how management expresses themselves to investors. The financial crisis showed that managements have learned a lesson. Is it your impression that the quality of risk disclosure about troublesome financial instruments (such as: ABS, CDO, RMBS, CMBS) has improved as the crisis proceeded? Yes, the disclosure has improved along the financial crisis. At the beginning structured products have been disclosed as one amount. On enquiry the products have been subdivided into categories like CDO, RMBS, CMBS and so on.

386

Capital market functionality:

"

Are you convinced about the ability of the capital market to include all information available in the share price? Do you support the theory of an efficient capital market in setting share prices?

The capital market proved quite efficient during the crisis. Whenever trouble arouse the share price moved correspondingly. The share price of SwissRe for example declined after its lagged risk disclosure. " Do you think that reliable conclusions can be drawn from the research method of measuring the capital market reactions on single event dates (Event study method that measures the deviation of actual share prices from predicted share prices that are calculated based on historic data of an industry share index over a short period of time)?

n.a.
In your opinion can the near insolvency of AIG on September 17th, 2008 be considered the most threatening situation for international insurance groups during the financial crisis? Do other situations come to your mind? The near insolvency of AIG had a significant impact on the insurance industry. The stumbling of such an insurance giant arose fear among investors. However an insolvency would have affected not only the insurance industry but governmental and industrial financial contracts that had been "secured" by Credit Default Swaps with AIG as a counterparty.

Another event that affected the insurance industry has been the insolvency of Lehman. Although a bank its default led to write-offs in Lehman bonds that many insurance companies were invested in. For German insurance groups an insolvency of the later saved Hypo-Real-Estate Bank would have been significant because the Pfandbriefe issued by it are part of their asset mix.
" Are you surprised about the research result that the capital market detected those international insurance companies whose equity ratio was reduced most by the financial crisis? Can you explain why the capital market detected them before they disclosed detailed information about impairments and lower market valuation about critical financial instruments in their financial statements 2008?

It is no surprise to me, because information about toxic assets have been available to investors before the group financial statements were published. Alarmed by ad-hoc announcements analysts asked the management of all European insurance groups during conference calls and investor days about problems that one insurance group had to disclose. This created transparency in the financial market and share prices reacted correspondingly. This happened with SwissRe: The company made an ad-hoc announcement that their projected profits could not be met. A snap conference call revealed Credit Default Swaps as the troublemaker which has been hidden in offbalance vehicle before. SwissRe management had to explain itself and other insurance groups were asked the same questions as SwissRe during their gatherings with analysts.

387

Overall questions:
" According to your judgement: What are the international insurance groups that have been affected most negatively by the financial crisis - which ones disclosed their risk timely and extensively, which ones didn't?

How the companies handle information about such risk differs. Assuming that management knows about the risk portfolio of their insurance group some pursue an active and other a passive way to disclose risk. MunicheRe, HannoverRe, Allianz and Zurich pursue an active way. The national requirement for listed German companies to disclose forecast information might be a reason for that behavior. HannoverRe for example breaks down their goals and quantifies them in a matrix which is disclosed to analysts. AEGON does not sufficiently disclose the assumptions of their embedded value calculation. " What has to be done in order to allow private investors and analysts to be better informed about crisis relevant risk factors of insurance companies?

How companieswere affected by the financial crisis depends especially on where they were doing business. European insurance groups with business in the US invested more likely in mortgage based financial instruments. Generali as a European only insurance group praised itself as not being directly affected by the financial crisis.

The internet provides transparency. Management presentations in conference calls and investors' days are place in the internet. They are accessible to all interested private investors. However, analysts have an advantage because they can place questions on such occasions. " Do you think that international insurance groups are as reluctant to disclose "sensitive" information about other topics as they have been reluctant to disclose risk information about "toxic" financial instruments that they hold during this crisis?

Some European insurance groups still hesitate to disclose risk information. Most groups have improved their communication on urgent risk topic. Among these groups is a preference to disclose and settle these risk topics by building reserves or writing down assets. Follow-up disclosure on risk topics once settled is not provided by insurance groups. An example of such preference is the asbestos risk of reinsurance companies such as MunichRe.

Do you believe the results of this research might affect the ongoing discussion about fair value measurement/full fair value accounting in the insurance industry?
Risk disclosure as well as fair value accounting can have a significant impact on the share price of listed European insurance groups. The financial crisis set limits in the disclosure of insurance groups regarding share price relevant information. The IASB allowed a recategorization of investments away from fair value when the financial crisis peaked and companies wanted to conceal drops in fair values. Or, MunichRe disclosed - unlike other insurance groups -a negative embedded value for its life 388

in the assessment of the overall performance because it no relevance of was segment, of the group.

389

Appendix Ic: Interview Seel (2010) Structured interview with Alexander Seel from Deutsche Bank, Financial Institutions Group on January 24,2011 Effect on equity ratio:

"

Do you think that the insurance industry has been hit hard by the financial crisis in comparison to other industries?

Yes, the insurance industry has been hit hard by the financial crisis. Insurance groups are asset managers that are sensible to market volatility caused by the crisis. But insurance companies have been associated by the public with banks during the financial crisis, although they differ in their business models.

"

Which one of the thirteen insurance groups analyzed has been affected most negatively by the crisis?

Insurance groups with bank business like Allianz or ING have been hit hard. As well as insurance groups with high leverage and a significant proportion of high risk assets in their portfolio suffered from the reduction of their equity.

"

Are you aware of confounding negative effects that lowered the equity ratio of the analyzed insurance groups and that were not based on impairments or lower market valuation of financial instruments?

The development of the equity ratio can be used as a proxy for the effect the financial crisis had on European insurance groups. Preferably a proxy should be based on several effects such as the change in IFRS accounting results, regulatory accounting results, the change in their rating status and the change in the disclosed market consistent embedded value. All changes should be measured from the beginning to the end of the financial crisis and then accumulated. Such a modified proxy would consider offsetting effects. Example given: An increased market interest rate would improve the embedded value but would decrease the IFRS accounting results due to lower market values of their fixed interest assets.

"

Can you name international insurance groups that have received financial aid from governments during the financial crisis?

European insurance groups with banking activities such as ING or Fortis received state subsidies as well as SNS a smaller insurance group in the Netherlands and Belgium that is not researched. Other than that US financial institutions such as AIG or Heartfort received financial aid.

Risk disclosure behavior: how insurance the Did you about companies have been get a clear picture " affected by the crisis by reading their group financial statements? No annual financial statements offer plenty of information. However for an analyst it is necessary to compare this information with other insurance groups or other industries. To benchmark this information is "almost impossible because of the complexity of the business models, assumptions that are made in order to calculate embedded values, different categorizationof assets according to AS 39 that lead to different effects in the
390

differ for insurance Additionally & loss requirements regulatory national profit accounts. based increased interest in the Changes Example value assets on rates groups. given: life for insurance from be deducted companies in requirements regulatory capital can some European countries but not in other ones. " Where you able to predict the effect the crisis had on an insurance group based on this annual information?

The insurance industry is far too complex in order to be able to make precise has the financial the on results of single crisis a such effects predictions about European insurance groups.

"

What information about the insurance group that proved important later on did you learn from the group financial statements first?

Information about structured financial instruments have improved during the financial improve. has to bonds disclosure But the sovereign about crisis.

"

Are you supportive of the theory that timely and extended disclosure by international insurance groups increases trust that investors have in that group?

Yes, I can support this theory. However, it is not the quantity of disclosed information that matters to analysts but its quality. The quality of the information depends on its Allianz disclosed Example in benchmarking. given: plenty of comparability especially information in a very structured way. As an analyst you cannot compare those data with other insurance groups.

"

Do you think that managers in the insurance industry can influence the extent of What financial in lead the they disclosure the statements? might groups risk of restrict them?

The management of insurance groups are restrained by international financial They these to have they that exceed with. can comply all reporting standards insurance industry long the In the' disclosure. by discretionary run requirements influences the setting. of standards by involvement:in lobbying. Example,given: The 9. IFRS of current standardizing process
Is it your impression that the quality of risk disclosure about troublesome financial instruments (such as: ABS, CDO, RMBS, CMBS) has improved as the crisis proceeded? The quality of disclosure about structured financial instruments has improved during the crisis.

Capital market functionality:

"

Are you convinced about the ability of the capital market to include all information available in the share price? Do you support the theory of an efficient capital market in setting share prices?

Capital market theories always assume efficiency and comparable information at a level playing field of all participants. These assumptions do not meet reality. Internal business European to DeutscheBank tried by margins among new compare studies
391

insurance groups. We found that every country has special regulations and every company makes differing assumptions. These factors restrict the efficiency of the capital market. " Do you think that reliable conclusions can be drawn from the research method of measuring the capital market reactions on single event dates (Event study method that measures the deviation of actual share prices -from predicted share prices that are calculated based on historic data of an industry share index over a short period of time)?

Not applicable
" In your opinion can the near insolvency of AIG on September 17th, 2008 be considered the most threatening situation for international insurance groups during the financial crisis? Do other situations come to your mind?

I don't think about certain days but periods. The period between autum 2008 and spring 2009 has been characterized by extreme volatility. As negative information emerged from insurance groups investors found it hard to build up trust in these companies. A similar period has been the sovereign risk crisis around spring 2010. Although the information has been around longer and could not be considered by investors as unanticipated events they arouse similar fear of investors as the afore mentioned period. " Are you surprised about the research result that the capital market detected those international insurance companies whose equity ratio was reduced most by the financial crisis? Can you explain why the capital market detected them before they disclosed detailed information about impairments and lower market valuation about critical financial instruments in their financial statements 2008?

No, I am not surprised that the capital market sorted out those European insurance groups that were affected negatively by the financial crisis although relevant information had not been disclosed in their annual financial statements so far. Investor calls, workshop, investor information ant other opportunities of the management to explain their current business results improve the understanding of these companies by analysts. Due to these activities the capital market gains an understanding about how the financial crisis affects European insurance groups.
Overall questions: international insurance the judgement: What that According to are groups your " have been affected most negatively by the financial crisis - which ones disclosed their risk timely and extensively, which ones didn't? In general those European insurance groups with life-insurance activities have risks that are harder to explain and to disclose to investors. In addition to that insurance Allianz have ING banking or experienced a significant as activities such groups with decrease of their equity ratio.

MunichRe on the opposite had their main activity in reinsurance that has not been hit hard by the crisis and a more conservative asset allocation. After the crisis 2003 they have converted their business in a more risk sensitive company.

392

"

What has to be done in order to allow private investors and analysts to be better informed about crisis relevant risk factors of insurance companies?

Private investors enjoy the transparency of European insurance groups the same way as institutional investors. However only combined with experience this information can be used beneficiallyin their financial decision making.
" Do you think that international insurance groups are as reluctant to disclose "sensitive" information about other topics as they have been reluctant to disclose risk information about "toxic" financial instruments that they hold during this crisis?

n.a. " Do you believe the results of this research might affect the ongoing discussion about fair value measurement/full fair value accounting in the insurance industry?

Although I agree that additional and comparable disclosure would be beneficial for investors I doubt that the disclosure of fair value based measurement of both sides of the balance sheet (full fair value) would be practical and provide decision usefulness to investors. They would not understand the high volatility of earnings caused by the measurement process. The disclosed information would not be comparable by investors due to the different assumptions made that are necessary to estimate fair values when real market based fair values do not exist.

393

Appendix Id: Interview Anonymous (2011a) Structured Interview with Anonymous from a major Investment on January 28,2011 Bank

Yes the financial sector with banks and insurance companies have been hit hard by the crisis. " Which one of the thirteen insurance groups analyzed has been affected most negatively by the crisis?

Effect on equity ratio: " Do you think that the insurance industry has been hit hard by the financial crisis in comparisonto other industries?

I don't want to mention single companies.

lowered that the Are negative effects equity ratio of you aware of confounding " the analyzed insurance groups and that were not based on impairments or lower market valuation of financial instruments? It is possible to use equity ratios as proxies for the impact the financial crisis had on insurance groups. However, a better proxy would be to measure the write ups on financial instruments after the crisis and market values increased. With such a proxy you could measure to what extend European insurance groups have written down and written up their mortgage based financial instruments. In addition to the effect of the crisis you could research to what extend these groups accounted true and fair. Those with the biggest write ups have shown the true value of the financial instruments at each point of time, whereas those groups without or limited write ups did not mark their assets down during the financial crisis. " Can you name international insurance groups that have received financial aid from governments during the financial crisis?

n.a
Risk disclosure behaviour: insurance how have the been Did companies about you clear picture get a " financial Where their by by the statements? group reading you crisis affected insurance had the to the an on group based on this crisis able predict effect annual information? It has been possible to predict the effect of the crisis on insurance groups. Gathering group insurance information over a long period of time analysts about an all available But financial the developments. the group statements are predict effects of can certain not the only source of information used by analysts. What information about the insurance group that proved important later on did first? financial learn from the statements you group

n.a " Are you supportive of the theory that timely and extended disclosure by international insurance groups increases trust that investors have in that group?

I support the theory that timely and extended disclosure increases trust by investors. It is necessary that this trust remains in crisis'situation because the business model of insurance companies is so complex. When investors do not receive timely and 394

comprehensibleinformation in a crisis situation they lose trust and assume the worst. This can lead to overreactionsthat we have experienced during the crisis. " n.a
Is it your impression that the quality of risk disclosure about troublesome financial instruments (such as: ABS, CDO, RMBS, CMBS) has improved as the crisis proceeded? Yes, the quality of risk disclosure has improved as the crisis proceeded. Information about troublesome financial instruments has become more structured, more specific to the situation of the company and in a few cases related to the statutory capital requirements and the excess capital of European insurance groups. " Capital market functionality: the Are the of capital market to include all ability you about convinced " information available in the share price? Do you support the theory of an efficient capital market in setting share prices?

Do you think that managers in the insurance industry can influence the extent of risk disclosure of the groups they lead in the financial statements? What might restrict them?

n.a.
Do you think that reliable conclusions can be drawn from the research method of measuring the capital market reactions on single event dates (Event study method that measures the deviation of actual share prices from predicted share prices that are calculated based on historic data of an industry share index over a short period of time)?

n.a.
September insolvency AIG 17th, In 2008 be the of on your near opinion can " considered the most threatening situation for international insurance groups during the financial crisis? Do other situations come to your mind? At this point of time private and institutional investors were shocked and fearful. This market. has the event affected whole capital Are you surprised about the research result that the capital market detected those international insurance companies whose equity ratio was reduced most by the financial crisis? Can you explain why the capital market detected them before they disclosed detailed information about impairments and lower market valuation about critical financial instruments in their financial statements 2008?

n.a. Overall questions:

" According to your judgement: What are the international insurance groups that have been affected most negatively by the financial crisis - which ones disclosed their risk timely and extensively, which ones didn't?

What has to be done in order to allow private investors and analysts to be better informed about crisis relevant risk factors of insurance companies? The transparency of how the industry accounts for their investments should improve. Categories of investment and the related measurements should be fully transparent or
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n.a. "

abolished in favour of a consistent market value related measurement of both sides of the balance sheet.
" Do you think that international insurance groups are as reluctant to disclose "sensitive" information about other topics as they have been reluctant to disclose risk information about "toxic" financial instruments that they hold during this crisis?

They might hesitate but they are pressed by analyst to disclose them. When investor relation departments of European insurance groups do not comment on specific questions analysts assume the worst and act accordingly.
Do you believe the results of this research might affect the ongoing discussion about fair value measurement/full fair value accounting in the insurance industry? I believe that European insurance groups should disclose the fair values of their assets and liabilities. This would lead to higher transparency. Although I think that insurance They in that disclose hesitate to would do so when way. and measure groups would they could afford it.

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Appendix Ie: Interview Anonymous (2011a) Structured Interview with Anonymous from a major Rating Agency on January 25,2011 Effect on equity ratio:

industry has been hit hard by insurance financial Do the think that the you crisis " in comparison to other industries? In comparisonto the banking sector the insurance industry took it well. There has been banking impact intense but in balance the their not as an as sheets sector. This is on because insurance companies have a longer liquidity position than banks. It enabled them to hold on to their investments until after the crisis. Banks instead had to fire sell parts of their investments and realized losses. " Which one of the thirteen insurance groups analyzed has been affected most negatively by the crisis?

European insurance groups with an exposure to the US-life insurance market or with banking activities have been downgraded as a result of the financial crisis. The lifeinsurance exposure forced the companies to meet financial guarantees of the policies they have sold that could not be achieved with the actual return of their investments.

lowered that the Are effects equity ratio of negative you aware confounding of " the analyzed insurance groups and that were not based on impairments or lower market valuation of financial instruments? To use the equity ratios as a proxy for the effects the financial crisis had on European insurance groups makes sense keeping in mind the measurement rules of IAS 39 that they all had to apply. Lower fair values of investments, fire sales of assets at a loss and lowered the economic value of the banking the segments, operating of negative results insurance groups together with their equity ratio.
have that financial insurance Can international received groups aid you name " from governments during the financial crisis? Fewer insurance groups received financial aid from governments than banks. AEGON ING and SNS (explanation: a Dutch/Belgium insurance group) come to mind as recipients. Risk disclosure behaviour:

"

Sensitivity information in financial statements that disclose the effect of different . scenarios on key business figures can be useful for rating decisions.

Did you get a clear picture about how, the insurance companies, have been affected by the crisis by reading their group financial statements? Where you able to predict the effect the crisis had on an insurance group based on this annual information?

important insurance that later did What information the proved group, on, about " statements first? learn from financial the you group Some European insurance groups disclosed their capital sensitivity.' This information enabled investors to estimate how much loss the companies could take. It was useful for companies because it reassured investors about the capital position of these
groups. 397

Are you supportive of the theory that timely and extended disclosure by " internationalinsurance groups increases trust that investors have in that group? Timely and extended disclosure can be considered beneficial to investors. However, this disclosure is not exclusively provided by financial statements but in particular in investor presentations.
Do you think that managers in the insurance industry can influence the extent of risk disclosure of the groups they lead in the financial statements? What might restrict them? Managers of European insurance groups face the problem that the information they disclose its hard to get across, because investors do not really; understand the industry. Therefore, it is their challenge to put information out that is understood. "

"

Most European insurance groups have improved their transparency during the financial crisis because investors demanded the information. Investors assumed the worst and were assured by positive and negative information.

Is it your impression that the quality of risk disclosure about troublesome financial instruments (such as: ABS, CDO, RMBS, CMBS) has improved as the crisis proceeded?

These are model assumptions. Investors as key figures of the capital markets often do not completely understand the insurance industry they are invested in. This is caused by the complexity of the business model and the variety of regulations that must be observed. Do you think that reliable conclusions can be drawn from the research method of measuring the capital market reactions on single event dates (Event study method that measures the deviation of actual share prices from predicted share prices that are calculated based on historic data of an industry share index over a short period of time)?

Capital market functionality: Are you convinced about the ability of the capital market to include all " information available in the share price? Do you support the theory of an efficient capital market in setting share prices?

n.a
In your opinion can the near insolvency of AIG on September 17th, 2008 be considered the most threatening situation for international insurance groups during the financial crisis? Do other situations come to your mind? The near insolvency of AIG has been a point of time of overall anxiety in the whole financial industry not just the insurance industry. " " Are you surprised about the research result that the capital market detected those international insurance companies whose equity ratio was reduced most by the financial crisis? Can you explain why the capital market detected them before they disclosed detailed information about impairments and lower market valuation about critical financial instruments in their financial statements 2008?

Annual financial statements came too late to provide investors with the necessary information about the financial crisis. This kind of information has been disclosed during investor presentations,road shows and conference calls. Investors rely more on this kind of sources during crisis situations.
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Overall questions: " According to your judgement: What are the international insurance groups that have been affected most negatively by the financial crisis - which ones disclosed their risk timely and extensively, which ones didn't? European insurance groups with life insurance such as Aegon and ING have been downgraded more often than ones with property and casualty insurance like Aviva, AXA, Generali, HannoverRe,MunichRe and Zurich. What in investors has be done to to allow private and analysts to be better order " informed about crisis relevant risk factors of insurance companies? The transparency of the industry should improve in order to make it a more attractive asset class. Accounting rules like IFRS 4 that require measurement based on market values try that. However, it is unclear whether or not this will be achieved. " Do you think that international insurance groups are as reluctant to disclose "sensitive" information about other topics as they have been reluctant to disclose risk information about "toxic" financial instruments that they hold during this crisis?

European insurance groups are reluctant to disclose this kind of information but they have less of a choice. They have to disclose the right information in the right way so that investors understand it better.

"

Do you believe the results of this research might affect the ongoing discussion about fair value measurement/full fair value accounting in the insurance industry?

The financial crisis had an effect on the standard setting process of IFRS 4. It made do that during not exist despite pressure on the values a market clear crisis accountants to market value their assets. However, it would be beneficial having a balance debit the to the side of credit and sheet. approach measure consistent

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