Life Insurer Financial Distress: Classification Models and Empirical Evidence

Abstract

This study extends previous research on life insurer insolvency by providing empirical evidence on a large (nonmatched-pair) sample of insurers based on three alternative types of statistical models. The study utilizes 1986 through 1990 data for a sample of insurers that did or did not become financially impaired during 1989 through 1991. Empirical evidence suggests that surplus measures and leverage measures are strong indicators of insurer financial strength; however, no evidence is found for a strong relationship between state minimum capital requirements and insolvency. Classification rates for this study's large sample are generally lower than those found in previous studies examining earlier time periods and using smaller, matched-pair samples.

JEL Classification: G22