Using the Z-Score to Analyze the Financial Soundness of Insurance Firms

27 Pages Posted: 9 Dec 2019

See all articles by Ignacio Moreno

Ignacio Moreno

Universidad Pablo de Olavide

Purificación Parrado-Martínez

Department of Financial Economics & Accounting. University of Jaén (Spain)

Antonio Trujillo‐Ponce

Universidad Pablo de Olavide - Department of Financial Economics & Accounting

Date Written: October 7, 2019

Abstract

This paper compares six different approaches to calculate Z-score using a final dataset of 183 insurers (1,382 observations) operating in the Spanish insurance sector during the period 2010-2017. This measure of risk has widely been used in the banking literature, and it has recently been applied to the insurance sector as an indicator of financial soundness. Using different methodologies (root mean squared error, ordinary least square and system-GMM regressions), we find that the best formula for calculating Z-score is the one that combines the current value of the return on assets and capitalization with the standard deviation of the returns calculated over the full period.

Keywords: Insurance Sector, Z-Score, Economic Crisis, Financial Soundness, European Financial System

JEL Classification: G22, G28, G32, G33

Suggested Citation

Moreno, Ignacio and Parrado-Martínez, Purificación and Trujillo-Ponce, Antonio, Using the Z-Score to Analyze the Financial Soundness of Insurance Firms (October 7, 2019). Available at SSRN: https://ssrn.com/abstract=3491667 or http://dx.doi.org/10.2139/ssrn.3491667

Ignacio Moreno

Universidad Pablo de Olavide ( email )

Ctra. Utrera, Km.1
Sevilla, Seville 41010
Spain

Purificación Parrado-Martínez

Department of Financial Economics & Accounting. University of Jaén (Spain) ( email )

Paraje Las Lagunillas, s/n
Jaén, Jaén 23071
Spain

Antonio Trujillo-Ponce (Contact Author)

Universidad Pablo de Olavide - Department of Financial Economics & Accounting ( email )

Ctra. Utrera, Km.1
Sevilla, 41013
Spain

HOME PAGE: http://https://www.upo.es/investiga/banef/

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