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A Comprehensive Examination of Insurer Financial Strength Ratings

38 Pages Posted: 11 Nov 2010 Last revised: 8 Aug 2011

Cassandra R. Cole

Florida State University - College of Business

Enya He

Independent

Kathleen A. McCullough

Florida State University - College of Business

Date Written: July 31, 2011

Abstract

While unsolicited financial strength ratings have been studied in the banking literature, these sometimes controversial ratings have not been studied in insurance. Utilizing data from multiple sources including a proprietary dataset, we provide the most comprehensive examination of insurer financial strength ratings to date and the first analysis of unsolicited ratings for US property-liability insurers. Similar to bank ratings, we find that insurers’ unsolicited ratings tend to be lower than solicited ratings. We also find some consistency in the importance of organizational and key financial characteristics when comparing the results for unsolicited and solicited ratings across the agencies.

Keywords: Financial Strength Ratings, Selection-Bias, Unsolicited Ratings, Demotech, A.M. Best

JEL Classification: G20, G22, G28

Suggested Citation

Cole, Cassandra R. and He, Enya and McCullough, Kathleen A., A Comprehensive Examination of Insurer Financial Strength Ratings (July 31, 2011). Available at SSRN: https://ssrn.com/abstract=1706318 or http://dx.doi.org/10.2139/ssrn.1706318

Cassandra R. Cole

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States

Enya He

Independent

Kathleen A. McCullough (Contact Author)

Florida State University - College of Business ( email )

Department of Risk Management and Insurance
150 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-8358 (Phone)
850-644-4077 (Fax)

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