Abstract
Although life insurance insolvency has not been a serious problem in the past, the incidence of such insolvencies is increasing. The scope of this paper is to review the financial operations of life insurance companies in order to detect variables which will be helpful in identifying potential insolvencies. Three multivariate analyses are used in this paper: Multidiscriminant Analysis (MDA), nonparametric analysis and a logit analysis. The NAIC-IRIS Tests, the decomposition measures, and other financial ratios were found to be accurate measures for classifying failures in a multivariate framework one and two years prior to insolvency. The analyses correctly classified between 82 and 91 percent of the life insurance companies one and two years prior to insolvency. Cross-sectional validation on 31 publicly traded life insurers indicated that these large insurers are reasonably safe. All these life insurers were correctly classified as solvent companies. However, further analyses of these models and a prospective probability model indicates that more than one type analysis may be required for measuring the probability of failure.
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Hershbarger, R., BarNiv, R. (1991). Classifying Financial Distress in the Life Insurance Industry. In: Cummins, J.D., Derrig, R.A. (eds) Managing the Insolvency Risk of Insurance Companies. Huebner International Series on Risk, Insurance, and Economic Security, vol 12. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-3878-9_3
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DOI: https://doi.org/10.1007/978-94-011-3878-9_3
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