Risks, Volume 9, Issue 10 (October 2021) – 14 articles

In the view of the current discussion on how to regulate the emerging InsurTech companies, if at all, the author attempts to demonstrate that rather than automatically introducing new regulation, the principle of proportionality can, in most cases, help to adapt application of the existing rules and policy approaches to the InsurTech business models without incurring major regulatory changes. An example of peer-to-peer platforms is used to show how the specificity of each InsurTech company can be grasped by the three key criteria of proportionality: nature, scale and complexity. Full article

The aim of this paper is to deepen the application of value at risk in the cyber domain, with particular attention to its potential role in security investment valuation. Cyber risk is a fundamental component of the overall risk faced by any organization. In order to plan the size of security investments and to estimate the consequent risk reduction, managers strongly need to quantify it. Accordingly, they can decide about the possibility of sharing residual risk with a third party, such as an insurance company. Recently, cyber risk management techniques are including some risk quantile-based measures that are widely employed in the financial domain. They refer to value at risk that, in the cyber context, takes the name of cyber value at risk (Cy-VaR). In this paper, the main features and challenging issues of Cy-VaR are examined. The possible use of this risk measure in supporting investment decisions in cyber context is discussed, and new risk-based security metrics are proposed. Some simple examples are given to show their potential. Full article

The main task of the article is to examine the impact of the reported impairment of assets (IoA) on the market reaction of investors on the Warsaw Stock Exchange [WSE] in the crisis condition caused by the COVID-19 pandemic. There is a need to verify whether the disclosure of this information in the period of economic downturn will cause a similar negative reaction as in previous topics in this area. Research undertaken in this article helps identify the rules of behaviour (in the short term) whether the reaction of investors on updating the company’s assets in crisis conditions is different than in times of prosperity. The main hypothesis will be verified using the event study methodology. It allows to verify whether the upcoming information about IoA during the COVID-19 pandemic confirms an existence of statistically significant negative abnormal returns. Based on the 55 cases of current reports informing about IoA, which were submitted to the investors in the year 2020 and finally qualified for the research sample, I have not observed statistically significant negative abnormal returns on the adjacent days. The results are different from those obtained by researchers who study the market reaction to the IoA under non-crisis conditions of the economy. Full article

Effective acquisition of funds, including European Union (EU) funds, designated for example, creating economic and social processes, may have a real impact on the elimination of the negative outcomes of the current position of the EU on the global scale. The aim of the research is to indicate the impact of spending funds from the Regional Operational Program of the Opolskie Voivodeship 2014–2020 (ROP OV) on a key macroeconomic area of the economy, i.e., the housing development sector in the region. The practical aim is to formulate recommendations and solutions that can offer guidelines for more effective spending of EU funds and their effect on the macroeconomic dimensions of the economy. The article proposes an innovative approach to linking EU payments in the region with the real estate market. The results of the research and the analyses made on this basis showed a positive impact of the payments made from the ROP OV on selected macroeconomic indicators, i.e., the number of permits issued for the construction of new apartments and the number of currently implemented housing investments. The obtained results should be used in the decision-making process at the level of regional and national authorities responsible for the payment of EU funds. In this article, prior to the research process, a literature review was made. It covered various aspects of the evolution and development of research in the area of regional development. The research process was based on innovative methods of time variability analysis, correlation between the investigated determinants and coherence analysis for the studied dimensions. Data on payments from the ROP OV concern the years 2015–2020. Full article

FinTech has been in the focus of discussion for quite some time. However, the market share of FinTech companies is still relatively small compared to that of more traditional financial services. The purpose of this paper is to analyse the status quo, current developments, and challenges ahead for the Latvian FinTech sector. We combine three analyses: a political and legal, economic, social, and technological environment (PEST) analysis; a survey among FinTech companies; and an analysis of the size and financial performance of FinTech companies during the last 10 years. We find that the current status of regulation is one of the main obstacles to FinTech development, because it does not sufficiently consider FinTech-specific aspects. Problems in attracting a skilled workforce and an environment that is not very supportive of new developments in finance are further challenges and might explain at least part of the growth and financial performance difficulties. A revision, modernization, and harmonization of regulation is essential to create a level playing field for all market participants: FinTech companies, traditional financial service providers, and those originally traditional players that are integrating FinTech solutions in their business model. Further efforts are also required to foster Latvia’s attractiveness for a skilled workforce. We hope that this study helps increase the visibility of Latvian FinTech and contributes to the development of the new Latvian FinTech strategy. Full article

The purpose of this study was to examine banks’ strategic adjustments to the challenges brought about by the COVID-19 pandemic. It examines how deep and pressing the necessary transformations are, based on an analysis of the banking sectors of Central, Eastern, and Northern European countries (CENE): the Czech Republic, Hungary, Poland, Slovakia, Estonia, Latvia, and Lithuania. The main research question posed asks how the pandemic and the subsequent economic crisis have changed banks’ sources of profits and risks, forcing banks to speed up structural transformations. In particular, the study identified and verified the following hypotheses: that the initial impact of the COVID-19 pandemic on banks in the analyzed region was heterogeneous and that the pandemic has intensified the challenges of digitalization and forced banks to speed up the digital transformations of their business models. The methodology employed was the dynamic panel data model—generalized method of moment (GMM-SYS version), using an adjusted dataset from the BankFocus database for unconsolidated bank data for the 2016–2020 period. The econometric analysis was supplemented with a CENE bank survey, researching bank attitudes and the stage of digital transformation. The results of the survey revealed that the majority of the surveyed banks consider themselves digitalization leaders, with a clearly articulated and implemented digitalization strategy. The main finding of the study was that the digital focus may help large banks in CENE to address and offset problems revealed by the panel data model: that traditional sources of incomes, based on intermediation and interest-related incomes, no longer contribute positively to profitability but also to stability. Full article

Although technology trends and acceptance have been considered crucial topics, limited research has examined stress-specific factors such as health anxiety in the context of the COVID-19 pandemic based on people’s attitudes toward a mobile health app using the Technology Acceptance Model (TAM). Accordingly, this study primarily highlights the psychological determinants stemming from the COVID-19 pandemic that affect the usage of a mobile health app. The study followed a cross-sectional design and adopted a snowball sampling technique to collect the data. The findings showed a significant association between perceived usefulness, perceived ease of use, and event-related fear and Tabaud App intention. The relationships between Tabaud App intention and COVID-19 anxiety on Tabaud App usage were also revealed. The study found a significant association between perceived ease of use and perceived usefulness. Additionally, the multi-group analysis showed that only two paths related to Tabaud App intention, perceived ease of use and perceived usefulness, differed significantly between males and females. Additionally, women experienced anxiety disorders more than men. The study contributes to the previous knowledge on the field by examining the psychological determinants resulting from the COVID-19 pandemic that influence using a mobile health app, namely, event-related fear and COVID-19 anxiety. The study results may help governments, health policymakers, and health organisations in Saudi Arabia contain the spread of the COVID-19 pandemic. Full article

The concordance probability, also called the C-index, is a popular measure to capture the discriminatory ability of a predictive model. In this article, the definition of this measure is adapted to the specific needs of the frequency and severity model, typically used during the technical pricing of a non-life insurance product. For the frequency model, the need of two different groups is tackled by defining three new types of the concordance probability. Secondly, these adapted definitions deal with the concept of exposure, which is the duration of a policy or insurance contract. Frequency data typically have a large sample size and therefore we present two fast and accurate estimation procedures for big data. Their good performance is illustrated on two real-life datasets. Upon these examples, we also estimate the concordance probability developed for severity models. Full article

This paper addresses the problem of approximating the future value distribution of a large and heterogeneous life insurance portfolio which would play a relevant role, for instance, for solvency capital requirement valuations. Based on a metamodel, we first select a subset of representative policies in the portfolio. Then, by using Monte Carlo simulations, we obtain a rough estimate of the policies’ values at the chosen future date and finally we approximate the distribution of a single policy and of the entire portfolio by means of two different approaches, the ordinary least-squares method and a regression method based on the class of generalized beta distribution of the second kind. Extensive numerical experiments are provided to assess the performance of the proposed models. Full article

In recent years, many companies have been issuing non-financial information which is used by a wide range of stakeholders in their decision-making processes. Considering the fact that such reports play an important role in financial markets, the information they provide should be submitted to verification by an external, independent body. Our study, carried out in 2020, showed that only 2.3% of audit firms in Poland offer auditing non-financial report services. This was the starting point for our further investigations, the results of which will be presented in this article. The aim of the article is to identify the factors that limit or stimulate the performance of auditing in Poland with respect to non-financial data, and to determine the scope of operations carried out by audit firms which provide this service. The article comprises literature perusal and results of empirical studies among audit firms in Poland. Several important findings have emerged, including the fact that there are few companies in the Polish auditing market rendering the service of auditing non-financial reports, which are leaders in this field. The factor that most significantly limits the performance of non-financial report auditing is the low demand for such a service, which arises from the fact that verification and assurance of non-financial data are not obligatory for all reporting undertakings. Given that the number of CRS reports is increasing every year, it seems necessary to make full audits in order to confirm the reliability of non-financial information provided by reporting companies. Otherwise, stakeholders interested in these reports might be exposed to a risk of making inadequate decisions. Full article

The aim of this paper is to provide a stochastic model useful for assessing the capital requirement for demographic risk in a framework coherent with the Solvency II Directive. The model extends to the market consistent context classical methodologies developed in a local accounting framework. The random variable demographic profit, defined in literatue under local accounting principles, is indeed analysed in a Solvency II framework. We provide a unique formulation for different non-participating life insurance contracts and we prove analytically that the valuation of demographic profit can be significantly affected by the financial conditions in the market. Regarding this topic, we implement the Vašíček model to add randomness to risk-free rates. A case study has also been developed considering a portfolio of life insurance contracts. Results prove the effectiveness of the model in highlighting the main drivers of capital requirement evaluation (e.g., the volatility of both mortality rates and risk-free rates), also compared to the local GAAP framework. Full article

We study whether gold acts as a hedge or a safe haven in U.S. and the Indian stock markets. These two stock markets have been chosen as representatives of the developed markets and the emerging markets, respectively, and are of significant interest to long-term investors. We apply a linear regression and a GARCH technique to monthly return series data on the S&P500, the BSE Sensex, and gold prices. We find that, for the period of our study, 1980–2020, gold has not served as a hedge or a safe haven for long-term investors in the U.S. or Indian stock markets. This holds true even across multiple sub-periods in our study period. Gold returns do not exhibit a significant negative relationship with stock returns in any of the chosen stock market scenarios, i.e., in times of extremely low returns as well as in the periods of high or low volatility. Equity investors in U.S. and Indian markets can use the findings of this study for optimising their portfolios. Additionally, central bankers and policy makers can use the findings for better outcomes with respect to their policies on holding of gold. Full article

Purpose This paper aims to study the specifics of managing the risks of innovative activities during the implementation of the Sustainable Development Goals (SDGs) in entrepreneurship that is focused on the consumer market in countries with different levels of income. Design/methodology/approach The research is performed with the help of regression analysis (one-factor and multiple simple linear regression). Two samples are created for this: (1) countries with high income and (2) upper middle income and countries with lower middle income, according to the classification of World Bank GNI per capita in current USD (Atlas method). Findings It is determined that priorities of the consumer market (demand) are differentiated among countries with different levels of income. In countries with high income and upper middle income, corporate social responsibility does not determine the quality of life. Only competitiveness is a milestone during the implementation of the SDGs in entrepreneurship activities focused on the consumer market. In countries with lower middle income, neither corporate responsibility nor competitiveness is the decisive factor in managing the risks of innovative activities focused on the consumer market. Originality The originality of this research consists in a new view of competitiveness and corporate responsibility from the positions of their influence on the implementation of the SDGs entrepreneurship focused on the consumer market. Social implications Due to the practical implementation of the offered recommendations for corporate management of improving the practice of managing the risks of innovative activities focused on the consumer market, the Quality of Life Index will grow by 44.95% in countries with high income and upper middle income and by 98.69% in countries with lower middle income. Full article

This paper illustrates the impact of Environmental Social and Governance (ESG) disclosure on European corporate equity performance. In this study, we use an extensive data set of European ESG ratings provided by Bloomberg to demonstrate that ESG disclosure is associated with improved return growth, with the Governance pillar exhibiting the strongest effect on corporate performance. The impact of ESG disclosure on volatility is changing over time, suggesting that the existence of opaque ratings limits the transmission of information disclosure into corporate performance. Full article