Can Altman’s Z-score Model Predict Insurance Companies' Failure? Evidence from Jordan

Abstract

-The primary objective of this study is to assess the effectiveness of Altman's model in predicting the financial failure of insurance companies listed on the Amman Stock Exchange in Jordan. To accomplish this aim, the researchers employed an analytical descriptive approach, analyzing a time series spanning four years (2015-2018) that encompasses all 24 insurance companies listed on the Amman Stock Exchange. The data used in the analysis was sourced from the actual financial reports published on the Amman Stock Exchange. In the analysis, the researchers utilized a modified version of the Altman model tailored for non-industrial companies. This model's outcomes were subsequently compared with the actual performance of the insurance companies, which was measured using the return on share metric. The necessary data for calculating the ratios employed in the model were derived from financial statements. The findings of this study revealed that Altman's model was unable to effectively predict the financial failure of insurance companies two years in advance of its occurrence. Consequently, the study recommends encouraging investors, financial analysts, and auditors to explore alternative models for assessing the financial standing of insurance companies and making well-informed decisions.