Environmental Factors Influencing the Rates of Property-Liability Insurer Insolvencies

Prior insolvency studies have focused on establishing a single criterion, developed from firm-specific data, to identify financially troubled insurers. None has explicitly considered the potential influence of the regulatory environment on insurer insolvency. The objective of this study is to determine if environment factors, particularly regulation, dependent variable (statewide insolvency rate) are employed: a simple frequency and a new metric based upon the probability associated with the upper bound of a confidence interval computed at a .10 significant level. Statistical tests indicate an inverse relationship between regulatory and insolvency. Additional evidence is provided that suggests the relationship is non-linear.