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The Role of RBC, Hurricane Exposure, Bond Portfolio Duration, and Macroeconomic and Industry‐wide Factors in Property–Liability Insolvency Prediction
Author(s) -
Cheng Jiang,
Weiss Mary A.
Publication year - 2012
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2011.01452.x
Subject(s) - insolvency , liability , herfindahl index , business , actuarial science , portfolio , bond , index (typography) , insurance industry , monetary economics , economics , financial system , finance , marketing , world wide web , computer science
This research analyzes the performance of the risk‐based capital (RBC) ratio and other variables in predicting insolvencies in the property–liability insurance industry during the period 1994–2008. The results indicate that the accuracy of the RBC ratio in predicting insolvencies is inconsistent over time and that some previously tested financial ratios that are part of the FAST system do not always reliably predict insurer insolvency. In addition, the insolvency propensity is found to be significantly related to an insurer's hurricane prone area exposure, changes in interest rates, the industry‐wide combined ratio, and the industry‐wide Herfindahl index of premiums written.