The Role of RBC, Hurricane Exposure, Bond Portfolio Duration, and Macroeconomic and Industry‐Wide Factors in Property–Liability Insolvency Prediction

28 Pages Posted: 23 Aug 2012

See all articles by Jiang Cheng

Jiang Cheng

Shanghai Jiao Tong University (SJTU)

Mary A. Weiss

Temple University

Multiple version iconThere are 2 versions of this paper

Date Written: September 2012

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.

Suggested Citation

Cheng, Jiang and Weiss, Mary A., The Role of RBC, Hurricane Exposure, Bond Portfolio Duration, and Macroeconomic and Industry‐Wide Factors in Property–Liability Insolvency Prediction (September 2012). Journal of Risk and Insurance, Vol. 79, Issue 3, pp. 723-750, 2012. Available at SSRN: https://ssrn.com/abstract=2134742 or http://dx.doi.org/10.1111/j.1539-6975.2011.01452.x

Jiang Cheng

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

Mary A. Weiss

Temple University ( email )

Fox School of Business and Management
1801 Liacouras Walk
Philadelphia, PA 19122
United States
215-204-1916 (Phone)

HOME PAGE: http://www.sbm.temple.edu/~rmidept/weiss.html

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