The selected time span, from 2008 to 2015, encompasses a period of economic instability characterised by record low interest rates and low or even negative economic growth. Analysing the determinants of insolvency risk for general insurance. A comparative study of islamic, conventional and socially responsible banks. Mcdonald 1992 summarized the factors affecting insurer insolvency, which provide useful guidelines on insurers financial health, but without classifying them. Solvency assessment the practice of assessing the solvency of an insurance company. Analysis and valuation of insurance companies columbia university. Solvency i directive 73239eec was introduced in 1973 for the prudential regulation of european insurance companies. Solvency, its adequacy, regulation and supervision, is at the heart of the operation of the insurance sector and underpins the prospect for insurers to contribute effectively to the financial sector and the economy.
Enterprise risk management and solvency ii emerald insight. The relationship between current assets and current liability items is called working capital of the organization. We study the determinants of the incidence of relationship lending. The main goal of working capital management according to mansoori and muhammad 2012 is to ensure that companies have sufficient cash flow to continue normal business. Using a dynamic panel data model, we conclude that actual solvency margins are positively related to profitability, underwriting risk and a mutual. A convenience sampling method is used to collect data for the period of. Analysing the determinants of insolvency risk for general. Martin grandes delta, ensehess, paris marcel peter international monetary fund 1 first version. Asiapacific journal of risk and insurance the official journal of the asiapacific risk and insurance association.
Request pdf economic crisis and determinants of solvency in the insurance sector. It is the ratio of the amount of available solvency margin asm to the amount of required solvency margin rsm. The findings of the paper are broadly consistent with those of the literature on bank failure, where the determinants of the latter include the entire camels structurethat is, capital adequacy, asset quality, management quality, earnings potential, liquidity, and sensitivity to. So far, however, insolvencies have remained very low, and even fell in many jurisdictions during 2020 banerjee, cornelli and zakrajsek 2020, imf 2021. Determinants of reinsurance demand in the ghanaian. The internal determinants originate from a bankspecific environment and are mainly influenced by a banks management decisions and policy objectives, and could. The determinants of corporate bond yield spreads in south.
Financial performances of companies are also affected by various determinants. The paper investigates the impact of solvency and liquidity regulation on banks balance sheet structure. Related to this, the financial services authority has set a minimum limit of solvency margin tabarru funds which amounted to 30% which must be fulfilled by islamic insurance companies. Profitability determinants of financial institutions. The determinants of net interest margins in the jordanian. According to the imf 2000 sets of debt sustainability indicators are used and the first set of indictors include debt to gdp.
The subject of this paper is to define and explore the solvency margin determinants for the macedonian insurance sector. Determinants of profitability in indian automobile industry 1joji abey and 2r. In any given period, lower export earnings higher import expenditures can increase the. In the longterm business, the admitted assets must exceed the admitted liabilities by 5%.
This is known as expansion of a determinant along a row or a column. Liquidity, solvency and profitability analysis using cash. In view of these findings, some recommendations may be functional for bank regulatory. It identifies the determinants which affect the generation of the indebtedness of sovereign bonds and play a major role in the determination of their solvency and hence, the spreads. In shortterm business, the margin must be greater than kes 10 million or 15% of the preceding year net premiums whichever is greater. Determinants of insurers reputational risk abstract.
Financial performance determinants of organi zations. A research on eurozone bond market and determinants of. By risk premium is meant the difference between the market yield on a bond and the corresponding pure rate of interest. Economic crisis and determinants of solvency in the insurance sector. The solvency margin positively influences performance in all models and two of the coefficients are significant at a level of 5%. So these proxy measures should be used with caution in future empirical works. Determinants of insurers reputational risk abstract whenpurchasingcoverage,insuranceconsumersareunabletoobserveaninsurersultimate performance on. Liquidity and solvency variables the first group of variables relates to a countrys liquidity or solvency problems. The determinants of financial health of asian insurance companies. The fundamental determinants of credit default risk for.
These determinants can broadly be assigned into two groups i. The aim of this paper is to describe the development of bank solvency in six selected central and eastern european countries bosnia and herzegovina, bulgaria, croatia, romania, serbia and slovenia and to find out if the share of equity in total assets is influenced by the affiliation of banks with financial conglomerate or if other determinants are more important. Section 3 describes the methodology used to analyse the data. The determinants of bank profitability through the global financial crisis. Economic crisis and determinants of solvency in the. This article focuses on the solvency of general propertyliability and life. Analysis of risk factors affecting firms financial. Pdf the study aimed to investigate the factors that affect the solvency of the insurance companies in palestine and to highlight the nature and. The first aim of insurance supervision is the protection of the interests of the. Since there is a close association between liquidity and solvency of banks, sound liquidity management reduces the probability of banks becoming insolvent, thus reducing the possibilities of bankruptcies and bank runs. There are six ways of expanding a determinant of order. Ultimately, prudent liquidity management as part of the overall risk management of the banking institutions ensures a healthy. While the exclusivity and the duration of the relationship, classic measures of the existence of close ties with the bank, are not determining factors.
Pdf profitability determinants of financial institutions. Economic crisis and determinants of solvency in the insurance. Liquidity ratios, cash flow ratios, solvency ratios, efficiency ratios and financial statement. Based on panel data for the three subperiods, 19861990, 19901994, and 19941999, it was further found that solvency determinants changed from one epoch to another. The findings of the paper are broadly consistent with those of the literature on bank failure, where the determinants of the latter include the entire camels structurethat is, capital adequacy, asset quality, management quality, earnings potential, liquidity, and sensitivity to market risk. Pdf economic and market predictors of solvency of family. On the measurement of solvency of insurance companies. This paper analyses the factors that determine the solvency of insurance companies operating in spain. This study will focus mainly on firm specific determinants which include profitability, leverage, innovation, liquidity and solvency. Determinants of solvency in selected cee banking sectors. To achieve this onerous task, we identify and analyze opinions, comments, suggestions and conclusions of various researchers and scholars alike in this critical area of corporate financial management. Studies were conducted on determinants of solvency margin in developed countries in the usa, europe and asia. Mcdonald 1992 summarized the factors affecting insurer insolvency, which provide useful guidelines on. Research report of the insurer solvency assessment working party.
Managers have a duty to respond in a good manner to these determinants in order to realize firm growth kochhar, 1996. The determinants of bank profitability in recent studies typically measured profitability according to the return on assets roa andor return on equity roe reported by a bank. Velmurugan 1college of business administration, kingdom university, kingdom of bahrain. Ou r key model parameter captures all determinants of the relative attractiveness of these two risk mitigation instruments beyond market prices. Section 2 shows the objectives and hypothesis of the study. Solvency ratios measure the financial soundness of a business and how well the company can satisfy its short and longterm obligations. Four ratios comprise the score, each of which describes a different creditrelevant characteristic of a company.
Cash flow theory, along with two financial distress models altman. If the inline pdf is not rendering correctly, you can download the pdf file here. The quality of data was assessed using autocorrelation, heteroskedasticity, multicollinearity. The solvency ratio divides total liabilities by total assets and determines the amount of debt per dollar of assets. Sri lanka telecom plc was found to have significantly higher solvency ratios than dialog axiata plc, indicating a possibility that the difference may be caused by the type of ownership.
Based on an analysis of determinants of cds spreads,annaert et al. External determinants usually reflect factors that do not relate to bank management practices. In pakistan, rahman, jan and iqbal 2018 identified the profitability determinants in the insurance. Thus, this report seeks to contribute to the body of knowledge on hospital solvency by synthesizing the findings from multiple empirical studies. Solvency of tabarru funds can indicate a companys ability to pay obligations islamic insurance claims payments to the participants or policyholders. In the literature, the factors influencing bank profitability are generally split into two groups. It contributes in particular to the debate on the use of liquidity bu. The study concludes that the independent variables in the em score model are relevant in determining the gc of dmbs. Using a multilevel regression model, this article aims to find determinants of banking solvency in the european union. Using bankscope data, this thesis seeks to analyze the determinants. Impact of liquidity and solvency on financial performance of. The determinants of efficiency, profitability and stability in the banking sector. Solvency margin is dependent variable while firm size, liquidity ratio, operating margin, loss ratio, expense ratio, premium growth and reinsurance.
These results reveal that interest rate, inflation, debt to gdp, deficit to gdp, gross domestic. Empirical determinants of relationship lending sahar loukil 1 and anis jarboui abstract. The determinants of bank profitability through the global. Data gathered from financial reports of insurance companies and macroeconomic variables from the bank of ghana database for a period of 7 years 200720 was analysed using the panel random effect regression. Does liquidity and solvency affect banks profitability. These four characteristics are capital structure leverage, interest coverage, short term liquidity, and profitability. The naic codified sap in the accounting practices and procedures manual. While the exclusivity and the duration of the relationship, classic. The net worth ratio, which is the ratio of total equity to total asset uses the owner. Determinants of business performance of nonlife insurance companies in serbia jelena kocovic, blagoje paunovic, marija jovovic 2014 ekonomika preduzeca on the determinants of profitability of indian life insurers an empirical study b. Solvency in this paper, solvency should be read as referring to the ongoing ability of an insurance company to meet its obligations as and when they fall due, and not being limited to consideration on a going concern basis. The determinants of financial health of asian insurance. Hhm model3 together with financial ratios to test the solvency status of individual insurers in the four.
The second one is a solvency constraint, defined as capital over riskweighted assets. They found that capital adequacy is an important determinant of bank margins, both in developed and transition bank markets and the adopted reforms in the ceec reduce the signaling strength of capital as an indicator of solvency. The determinants of financial health of asian insurance companies renbao chen kie ann wong abstract previous studies of financial health of insurance companies are mainly focused on insurers operating in the united states and developed economies. Introducing the morningstar solvency score, a bankruptcy. Designmethodologyapproach data are extracted from the annual reports of six family takaful. This paper analyses the determinants of insolvency risk for uk general insurance firms rather than nonlife and life insurance firms. Also, other factors may affect financial performance, such as leverage. Morningstar solvency score the morningstar solvency score is an accountingratio based metric. Internal factors are those that effect a banks management and policy decisions.
Bank profitability determinants are characterized as either being internal or external. Researchers have developed various models for predicting insolvency as well as analysed dozens of various financial ratios. In other words, the degree of solvency in a business is measured by the relationship between. Pdf determinants of the solvency of insurance companies in. Charumathi 2012 proceedings of the world congress on engineering the determinants of financial. Impact of liquidity and solvency on financial performance. Tariq, journalinternational journal of financial studies, year2018, volume6, pages128. Mcdonald 1992 summarized the factors affecting insurer insolvency, which provide useful guidelines on an insurers financial health. Mar 01, 2021 from that point of view, solvency regulation, which aims at increasing k, and liquidity regulation, which aims at reducing d, may appear as substitutable.
Pdf determinants of the solvency of insurance companies. Solvency ii will significantly change the amount of information many insurers put in the public domain about their risk profiles and the marketconsistent valuation of the liabilities they hold. Solvency ii solvency i is the eus insurer solvency regime introduced in 2004 18% of premium written up to 50m plus 16% of premi ums above 50m. There is a positive relationship between those factors and bank profitability. Very little is known about the insurance industry especially from the perspective of an emerging market like kenya. The determinants of corporate bond yield spreads in south africa. Determinants of profitability in indian automobile industry. Nov 01, 2017 solvency ii requires insurers to hold more capital, specifically to have 99.
Charumathi solvency ratio is an important indicator of the financial health of an insurance firm and denotes its ability to survive in the long run. In this case the regulators are taking a riskbased approach to supervise firms. It is estimated by means of ols, decomposed into a trend and a cyclical component using the hodrick. Babihuga and spaltro2014 study an international panel of 52 banks in advanced economies from 2001. This implies that, any increase in these determinants would lead to increase in gc of dmbs. This paper seeks to open the flood gates for more scientific research and academic debate into kenyan general insurers financial performance.
Purpose the purpose of this study is to empirically study firmspecific and economic factors affecting solvency of family takaful companies in malaysia. Thus, this article will concentrate on identifying determinants of oe and the tie between oe and solvency of logistics jscs so as to give supported clues for this problem. Quick ratio this ratio, also called acid test or liquid ratio, considers. Mcdonald 1992 summarized the factors affecting insurer insolvency, which provide useful guidelines on an insurers financial health, but without classifying them into different types of insurers. Even if the results of the studies differ significantly upon. Further, they did not reject the structureconductperformance scp4 hypothesis for western or eastern european. A global framework for insurer solvency assessment international. Solvency determinants of conventional life insurers and. This study empirically investigates the determinants of commercial banks liquidity.
However, we will see below that they may arise more complementary than substitutable. An exploratory framework of the determinants of financial. While these changes are all made to increase the solvency of the plans, little is known about why states choose some reforms over others or why they choose to reform at all. This study examined the nature and determinants of reinsurance demand by insurance companies in ghana. The results from this study can be used to gain a better understanding of the relationships between and among the determinants of. Solvency determinants of conventional life insurers and takaful.
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