Title

The role of RBC, hurricane exposure, bond portfolio duration, and macroeconomic and industry-wide factors in property–liability insolvency prediction

Document Type

Journal article

Source Publication

Journal of Risk and Insurance

Publication Date

3-2012

Volume

79

Issue

3

First Page

723

Last Page

750

Publisher

American Risk and Insurance Association

Abstract

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.

DOI

10.1111/j.1539-6975.2011.01452.x

Print ISSN

00224367

E-ISSN

15396975

Funding Information

Financial support from the Networks Financial Institute at Scott College of Business at Indiana State University.

Publisher Statement

Copyright © The Journal of Risk and Insurance, 2012

Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Cheng, J., & Weiss, M. A. (2012). The role of RBC, hurricane exposure, bond portfolio duration, and macroeconomic and industry-wide factors in property-liability insolvency prediction. Journal of Risk and Insurance, 79(3), 723-750. doi: 10.1111/j.1539-6975.2011.01452.x