A Comprehensive Examination of Insurer Financial Strength Ratings
38 Pages Posted: 11 Nov 2010 Last revised: 8 Aug 2011
Date Written: July 31, 2011
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
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