ASSESSMENT OF FINANCIAL STABILITY OF INSURANCE COMPANIES

Abstract

By the nature of their business, insurance companies are exposed to risks. An insurance company’s distress or failure can arise through inadequate provisions for claims or insufficient capital to withstand unexpected losses either from insured events or volatility in the assets they hold. The likelihood of distress or failure may be heightened through certain activities insurance companies can engage in. This article sets out two main ways in which insurance companies could have adverse effects on financial stability and focuses on the key channels for transmission of risks to financial stability rather than conjunctural risk assessment.