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This article examines the cost efficiency of insurance firms located in 11 countries over a five-year period, 1988-1992. TwoX-inefficiency measures are derived, one from the stochastic cost frontier model and the other from the distribution-flee model. The results show that X-inefficiencies not only vary by country but by size and specialization. Firms in Finland and France have the lowest X-inefficiency, while firms in the United Kingdom have the highest. On average, small firms are more cost efficient than large firms worldwide. Firms grouped into those offering single or specialized services also operate more cost efficiently than those offering a combination of life and nonlife services (combined firms). The results also indicate that the X-inefficiency estimates derived from the stochastic cost frontier model are more suitable for this sample of data than those derived from the distribution-free model.

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This article examines the impact of the passage of the Second and Third Life and Non-Life European Insurance Directives on insurance firms located in 14 European Union countries, Norway, and Switzerland. The third directives have a wealth effect on the European insurance market, while the second directives do not. The Third Life Directive resulted in a wealth increase for the European insurance market, while the Third Non-Life Directive had a modest negative wealth effect. The wealth effects differ at both the country and firm level. The directives have differential impacts on firms depending on the firms' characteristics and those of the market they operated in prior to the directives. Regression results indicate that the second directives have impacted firms in protected markets negatively, especially those with higher debt and higher returns on assets. At the time of the third directives, insurance firms benefited, even those in previously protected markets, indicating that firms may have positioned themselves in preparation for the liberalization of the laws. Disciplines Finance and Financial Management Comments This is a preprint of an article published in The Impact of the European Union Insurance Directives on Insurance Company Stocks AbstractThis paper examines the impact of the passage of the Second and Third Life and Non-Life European Insurance Directives on insurance firms located in 14 European Union countries, Norway and Switzerland. The third directives have a wealth effect on the European insurance market while the second directives do not. The Third Life Directive resulted in a wealth increase for the European insurance market while the Third Non-Life Directive had a modest negative wealth effect. The wealth effects differ at both the country and firm level. The directives have differential impacts on firms depending on the firms' characteristics and those of the market they operated in prior to the directives. Regression results indicate the second directive impacted firms in protected markets negatively, especially those with higher debt and higher returns on assets. At the time of the third directives, insurance firms benefit, even those in previously protected markets, indicating that firms may have positioned themselves in preparation for the liberalization of the laws.