IDEAS home Printed from https://ideas.repec.org/a/aiy/jnjaer/v19y2020i2p208-224.html

Assessing the Financial Stability of Insurance Companies by Analyzing the Dynamics of Cash Flows

Author

Listed:
  • A.V. Larionov

Abstract

The presented research is dedicated to analysis of the possibility of using information about of cash flow trends to assess the financial stability of insurance companies. The significant role of insurance organizations in economic development determines the need to develop an approach to monitoring their sustainability. Improving the accuracy of monitoring will allow the Bank of Russia to support insurance companies before bankruptcy. Existing approaches involve analyzing the actual values of indicators, reflecting the position of the insurance company in various areas of activity. The purpose of this study is to assess the possibility of using information about the trends in cash flows in predicting the default of an insurance company. The dynamics of cash flows is an indirect indicator of the internal environment of the insurance company. This study suggests using information about changes in the main financial indicators, as well as the structure of the insurance portfolio. In the study, binary probit regressions were constructed, which confirmed the possibility of using indicators of the trends in cash flows of insurance companies as indicators of stability. The constructed regressions included two groups of indicators: financial indicators and indicators of insurance activity. The results of the empirical assessment confirm the possibility of using increases in insurance performance indicators to determine the stability of insurance organizations. The statistical significance of the indicators of cash flow dynamics was confirmed, including indicators of growth of insurance liabilities, insurance reserves, as well as growth of insurance premiums for certain types of insurance. In this regard, this category can be separated into a class of indicators that are used to assess financial stability. Based on the calculation of the unobservable logistics effect, all insurance companies are classified as stable and unstable. The results can be used by the Bank of Russia in expanding the set of indicators used for monitoring the activities of insurance companies

Suggested Citation

  • A.V. Larionov, 2020. "Assessing the Financial Stability of Insurance Companies by Analyzing the Dynamics of Cash Flows," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 19(2), pages 208-224.
    • Handle: RePEc:aiy:jnjaer:v:19:y:2020:i:2:p:208-224
    DOI: http://dx.doi.org/10.15826/vestnik.2020.19.2.011
    as

    Download full text from publisher

    File URL: https://journalaer.ru//fileadmin/user_upload/site_15934/2020/05_Larionov.pdf
    Download Restriction: no
    File URL: https://libkey.io/http://dx.doi.org/10.15826/vestnik.2020.19.2.011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Aksana A. Turgaeva & Liudmila V. Kashirskaya & Yulia A. Zurnadzhyants & Olga A. Latysheva & Irina V. Pustokhina & Andrei V. Sevbitov, 2020. "Assessment of the financial security of insurance companies in the organization of internal control," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(3), pages 2243-2254, March.
    2. Zhehao Jia & Yukun Shi & Cheng Yan & Meryem Duygun, 2020. "Bankruptcy prediction with financial systemic risk," The European Journal of Finance, Taylor & Francis Journals, vol. 26(7-8), pages 666-690, May.
    3. Darrell Leadbetter & Suela Dibra, 2008. "Why Insurers Fail: The Dynamics of Property and Casualty Insurance Insolvency in Canada," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 33(3), pages 464-488, July.
    4. Van Laere, Elisabeth & Baesens, Bart, 2010. "The development of a simple and intuitive rating system under Solvency II," Insurance: Mathematics and Economics, Elsevier, vol. 46(3), pages 500-510, June.
    5. Mikko Makinen & Laura Solanko, 2018. "Determinants of Bank Closures: Do Levels or Changes of CAMEL Variables Matter?," Russian Journal of Money and Finance, Bank of Russia, vol. 77(2), pages 3-21, June.
    6. Nikolina Smajla, 2014. "Measuring Financial Soundness Of Insurance Companies By Using Caramels Model – Case Of Croatia," Interdisciplinary Management Research, Josip Juraj Strossmayer University of Osijek, Faculty of Economics, Croatia, vol. 10, pages 600-609.
    7. Eling, Martin & Jia, Ruo, 2018. "Business failure, efficiency, and volatility: Evidence from the European insurance industry," International Review of Financial Analysis, Elsevier, vol. 59(C), pages 58-76.
    8. W. Jean Kwon, 2013. "The significance of regulatory orientation, political stability and culture on consumption and price adequacy in insurance markets," Journal of Risk Finance, Emerald Group Publishing, vol. 14(4), pages 320-343, August.
    9. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    10. Kaffash, Sepideh & Azizi, Roza & Huang, Ying & Zhu, Joe, 2020. "A survey of data envelopment analysis applications in the insurance industry 1993–2018," European Journal of Operational Research, Elsevier, vol. 284(3), pages 801-813.
    11. Belousova, V. & Kozyr, I., 2016. "How Do Macroeconomic Indicators Influence Banking Profitability in Russia?," Journal of the New Economic Association, New Economic Association, vol. 30(2), pages 77-103.
    12. W. Jean Kwon & Leigh Wolfrom, 2016. "Analytical tools for the insurance market and macro-prudential surveillance," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2016(1), pages 1-47.
    13. repec:eme:jrfpps:v:14:y:2013:i:2:p:320-343 is not listed on IDEAS
    14. W. Jean Kwon, 2013. "The significance of regulatory orientation, political stability and culture on consumption and price adequacy in insurance markets," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 14(4), pages 320-343, August.
    15. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hsu, Bo-Xiang & Chen, Yi-Min & Chen, Li-An (Leann), 2022. "Corporate social responsibility and value added in the supply chain: Model and mechanism," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    2. Robert E. Martin, 2011. "The College Cost Disease," Books, Edward Elgar Publishing, number 14179.
    3. Dirk Helbing, 2013. "Economics 2.0: The Natural Step towards A Self-Regulating, Participatory Market Society," Papers 1305.4078, arXiv.org, revised Jun 2013.
    4. Morlok, Tina & Matt, Christian & Hess, Thomas, 2017. "Privatheitsforschung in den Wirtschaftswissenschaften: Entwicklung, Stand und Perspektiven," Working Papers 1/2017, University of Munich, Munich School of Management, Institute for Information Systems and New Media.
    5. Thijssen, J.J.J., 2003. "Investment under uncertainty, market evolution and coalition spillovers in a game theoretic perspective," Other publications TiSEM 672073a6-492e-4621-8d4a-0, Tilburg University, School of Economics and Management.
    6. Isabel Amigo & Pablo Belzarena & Sandrine Vaton, 2013. "A pricing scheme for QoS in overlay networks based on first-price auctions and reimbursement," Netnomics, Springer, vol. 14(1), pages 69-93, November.
    7. Salvatore Piccolo & Piero Tedeschi & Giovanni Ursino, 2018. "Deceptive Advertising with Rational Buyers," Management Science, INFORMS, vol. 64(3), pages 1291-1310, March.
    8. Heski Bar-Isaac & Ian Jewitt & Clare Leaver, 2021. "Adverse selection, efficiency and the structure of information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(2), pages 579-614, September.
    9. Roberto Ippoliti, 2012. "Making profits working on patients’ expectations, a behavioral analysis of pharmaceutical clinical research," Journal of Bioeconomics, Springer, vol. 14(3), pages 217-241, October.
    10. Bhatt, Om Prakash, 2023. "Roles and Scenario of Partly Qualified Actuaries in Insurance Companies of Nepal," OSF Preprints ue2xv, Center for Open Science.
    11. Andrea Attar & Thomas Mariotti & François Salanié, 2011. "Nonexclusive Competition in the Market for Lemons," Econometrica, Econometric Society, vol. 79(6), pages 1869-1918, November.
    12. Florian Scheuer & Kent Smetters, 2014. "Could a Website Really Have Doomed the Health Exchanges? Multiple Equilibria, Initial Conditions and the Construction of the Fine," NBER Working Papers 19835, National Bureau of Economic Research, Inc.
    13. Cabrales, Antonio & Charness, Gary, 2011. "Optimal contracts with team production and hidden information: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 77(2), pages 163-176, February.
    14. Athreya, Kartik B., 2014. "Big Ideas in Macroeconomics: A Nontechnical View," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262019736, December.
    15. Dehlen, Tobias & Zellweger, Thomas & Kammerlander, Nadine & Halter, Frank, 2014. "The role of information asymmetry in the choice of entrepreneurial exit routes," Journal of Business Venturing, Elsevier, vol. 29(2), pages 193-209.
    16. George Overton & Olivier de Bandt, 2020. "Why do insurers fail? A comparison of life and non-life insolvencies using a new international database," Working Papers hal-04159696, HAL.
    17. Bonroy, Olivier & Lemarié, Stéphane, 2012. "Downstream labeling and upstream price competition," European Economic Review, Elsevier, vol. 56(3), pages 347-360.
    18. Bandyopadhyay, Siddhartha, 2013. "Market thickness, prices and honesty: A quality demand trap," Mathematical Social Sciences, Elsevier, vol. 65(1), pages 52-59.
    19. Soumyanetra Munshi, 2017. "¡®Arranged¡¯ Marriage, Education, and Dowry: A Contract-theoretic Perspective," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 42(1), pages 35-71, March.
    20. Nobel Prize Committee, 2001. "George A. Akerlof, A. Michael Spence, Joseph E. Stiglitz: Markets with Asymmetric Information," Nobel Prize in Economics documents 2001-2, Nobel Prize Committee.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aiy:jnjaer:v:19:y:2020:i:2:p:208-224. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Natalia Starodubets (email available below). General contact details of provider: https://edirc.repec.org/data/seurfru.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.