Introducing Early Warning System for Solvency of Iranian Insurance Companies, Using Pane data method

Subject Areas : Journal of Investment Knowledge

Mahmoud Haghverdilou ¹ , Kambiz Peykarjou ² , gholam reza zomorodianS ³

1 - Phd, Department of Financial Management, Science and Research Branch, Islamic Azad University, Tehran-Iran
2 - PhD, Assistance Professor, Science and Research Branch, Islamic Azad University, Tehran-Iran
3 - Ph.D., Assistance Professor, Central Tehran Branch, Islamic Azad University, Tehran-Iran.

Received: 2020-06-14 Accepted : 2022-06-12 Published : 2022-12-22

Keywords: Early Warning System, Solvency, insurance, Panel data,

Abstract :

Financial solvency is one of the essential components that illustrates financial status of a financial enterprise, at large, or an insurance company to be specific. In addition to solvency ratio, other metrics and indices are also early warning indicators of an upcoming crisis in insurance industry. Therefore, the main purpose of the present paper is to provide a model for an early warning system of solvency for insurance companies and Iranian insurance companies in particular. To this end, a number of indexes and ratios, as independent variables affecting solvency, are selected and classified as economic, corporate, and corporate governance, that distinct this article from other studies. In this respect, the empirical model of research was estimated by econometric method of panel data for 18 Iranian companies during 1387-1396. The results of the research depict that interest rates with one-period delay and the change in board of directors have the most and the least impact on Iranian insurers’ solvency, respectively. Also, due to its cube strength, the impact of loss ratio differs in various quantities. Moreover, all hypotheses that are based on meaningful impact of variables on financial solvency of Iranian insurers are verified; including macroeconomic (inflation rate with one delay), interest rate (with one delay), economic growth (with one delay), corporate variables (ratio of investments in risky assets to all assets), loss ratio, the Herfindahl–Hirschman Index, and corporate governance (percentage of major shareholder’s ownership and change in board of directors) along with international economic sanctions.

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