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A Probit Analysis of Best Ratings

Author

Listed:
  • Raja Bouzluita
  • Arthur J. Young

Abstract

In 1991, the A.M. Best Company changed the schedules and procedures for assigning ratings to property-liability insurers. An explanation of this change is of interest to consumers, regulators, and management. This study uses ordered probit to test for a downshift in the average ratings. The results of the analysis show that there has been a movement toward lower ratings and that the return on surplus is more important with the new ratings. The results are robust with respect to alternative estimation procedures.

Suggested Citation

  • Raja Bouzluita & Arthur J. Young, 1998. "A Probit Analysis of Best Ratings," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 21(1), pages 23-34.
    • Handle: RePEc:wri:journl:v:21:y:1998:i:1:p:23-34
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    File URL: http://www.insuranceissues.org/PDFs/212BY.pdf
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    Cited by:

    1. Jassem Alokla & Arief Daynes & Paraskevas Pagas & Panagiotis Tzouvanas, 2023. "Solvency determinants: evidence from the Takaful insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 847-871, October.
    2. Caporale, Guglielmo Maria & Cerrato, Mario & Zhang, Xuan, 2017. "Analysing the determinants of insolvency risk for general insurance firms in the UK," Journal of Banking & Finance, Elsevier, vol. 84(C), pages 107-122.
    3. Muhammad Suhail Rizwan & Asifa Obaid & Dawood Ashraf, 2017. "The Impact of Corporate Social Responsibility on Default Risk: Empirical evidence from US Firms," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(3), pages 36-70, September.
    4. Patrycja Chodnicka-Jaworska, 2021. "ESG as a Measure of Credit Ratings," Risks, MDPI, vol. 9(12), pages 1-26, December.
    5. Jan Janku & Ondrej Badura, 2021. "Non-linear Effects of Market Concentration on the Underwriting Profitability of the Non-life Insurance Sector in Europe," Working Papers 2021/9, Czech National Bank.
    6. Mario Cerrato & Paolo Coccorese & Xuan Zhang, 2020. "The Informational Content of Default Risk in UK Insurance Firms," Working Papers 2020_06, Business School - Economics, University of Glasgow.
    7. Mike Adams & Bruce Burton & Philip Hardwick, 2003. "The Determinants of Credit Ratings in the United Kingdom Insurance Industry," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 539-572, April.
    8. Patrycja Chodnicka -Jaworska & Piotr Jaworski, 2019. "Insurance Companies – What Determinates Their Credit Ratings," Faculty of Management Working Paper Series 52019, University of Warsaw, Faculty of Management.
    9. Guglielmo Maria Caporale & Mario Cerrato & Xuan Zhang, 2016. "Analysing the Determinants of Credit Risk for General Insurance Firms in the UK," CESifo Working Paper Series 5971, CESifo.
    10. Ignacio Moreno & Purificación Parrado‐Martínez & Antonio Trujillo‐Ponce, 2020. "Economic crisis and determinants of solvency in the insurance sector: new evidence from Spain," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2965-2994, September.
    11. Jaspreet Kaur & Madhu Vij & Ajay Kumar Chauhan, 2023. "Signals influencing corporate credit ratings—a systematic literature review," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 50(1), pages 91-114, March.
    12. Md Abdul Wasi & Thu Phuong Pham & Ralf Zurbruegg, 2023. "Bank systemic risk: An analysis of the sovereign rating ceiling policy and rating downgrades," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(1-2), pages 411-440, January.
    13. Jill Bisco & Kathleen McCullough, 2017. "Retained Asset Accounts and Creditor Reactions to an A.M. Best Change," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 20(3), pages 277-307, December.

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