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
Language
English
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