Analyst forecast errors and dispersion before and after mandatory Solvency II implementation

• Analysts were considered the primary intended users of Solvency II information. • We analyse both quantitative and qualitative solvency-related information items. • Solvency data became more decision-useful for analysts after Solvency II. • Risk-profile narrative disclosures positively affect forecasts. • Valuation and capital-management information negatively affect forecast properties. Since January 1, 2016, insurance companies in the European Economic Area (EEA) are required to comply with the Solvency II framework. This introduced changes in the solvency-related quantitative metrics and mandated public disclosure of additional risk-related information as part of a three-pillar structure. As analysts are the primary intended recipients of this information, we use a sample of EEA insurers and an array of quantitative and qualitative solvency-related information items to investigate whether and how analyst forecast properties have changed in response to the provision of Solvency II information. We find that Solvency II implementation has materially changed the decision usefulness of solvency-related information for analysts. Disclosure of general solvency information, risk profile, and voluntary economic solvency narrative information reduces analyst forecast errors and forecast dispersion during the Solvency II period. Similar effects are observed for the quantitative solvency metrics of solvency coverage and embedded value. However, we find that the disclosure of information on valuation for solvency purposes and capital management negatively affects analyst forecast properties. This study contributes to the literature on financial and risk reporting, within and beyond the insurance industry, and provides insights for regulators on the benefits of Solvency II disclosures.