Financial Stability of Insurance Companies in Selected CEE Countries

Abstract

Background: Financial stability or soundness of insurance companies has gained importance over the years, especially after the financial crisis of 2008. Various stakeholders such as policy makers, regulators, the insured, etc. are interested in keeping the insurance sector stable since it contributes to overall financial stability. Objectives: The authors explore the determinants of insurers' soundness in selected countries in Central and Eastern Europe. The analysis covers life, non-life and composite insurers that operated in Croatia, Hungary, and Poland in the period 2013-2017. Methods/Approach: A set of insurer-specific, industry-specific and macroeconomic variables are taken into consideration for having a potential influence on soundness measured by the Z-score. The variables include the size based on total assets, the share of premium ceded to reinsurance, claims growth, gross written premium growth, the premium to surplus ratio, market shares held by the five largest insurers, the share of gross written premium in the gross domestic product (GDP) and the GDP per capita growth. Results: The findings reveal that soundness of Croatian insurers is positively influenced by the size of an insurer. Both in Hungary and Poland reinsurance plays an important factor positively affecting soundness. Conclusions: Each of the insurance markets covered by the analysis reveals its characteristics and offers guidelines on factors influencing financial stability.