Consumers, investors, regulators, and researchers use insurer ratings to evaluate the strength of insurers. Insurer financial strength ratings provide a rating agency's opinion of the insurer's overall financial strength and ability to meet its policyholder obligations. As such, ratings are meant to be a summary of insurer's financial strength. The purpose of this paper is to assess the financial strength of domestic property-liability insurers by using Best's rating technique. Nine domestic non-life insurers, which are classified into 2 groups (large group vs. small group) by direct premium volume, and two leading American insurers, AIG and Allstate, are selected as examples.
A quantitative evaluation of 9 domestic insurers' financial strength and operating performance relative to the Best's top group and two leading company is carried out. The quantitative evaluation is done in 5 key areas; growth, efficiency, profitability, safety, and liquidity.
This study indicates that advanced foreign insurers maximize their profit by focusing on efficient asset management and underwriting performance in order to take comparative advantages in a competitive industry. However, the nine domestic insurers have to improve profitability and efficiency areas to endure as a competitive going-concern. Domestic insurers should have a strong financial structure with quality management. They should strive to strengthen financial soundness through profitability and efficiency. It also provides evidence that there is a big gap between domestic large insurers and small insures in all areas. Therefore, small domestic insurers especially, should focus on long-term management objective. In order to survive and cope with rapid changes of financial environment, they should be concerned with competition by the market share and with operation efficiency and profitability.