Regulation of the Structure of the Insurance Portfolio as a Mechanism to Reduce the Risks of Insurance Companies

The purpose of this article is to determine the influence of the portfolio structure on the stability of insurance companies’ activity. With this objective, we examined how the structure of insurance portfolio affects the risks of companies’ activity.

The author has proved that if insurance companies focus on voluntary property insurance it increases the probability of revocation of their licenses. These results were derived from a binary logistic regression using 112 observations. Parameters of insurance portfolio, as well as regional macroeconomic indicators that reflect the operating environment of the insurance business were used as variables for the model. Indicators of the insurance portfolio include voluntary and compulsory insurance. In the course of the research, it was revealed that one of the possible directions of development of insurance market regulation may be the organization of the mechanism of supervision over insurance companies, which allows soft impact on the structure of insurance portfolios in order to increase the stability of insurers. The introduction of this approach in regulation will allow the Bank of Russia to stimulate the development of the insurance market. Based on the results of the presented study, the Bank of Russia may develop guidelines to determine the optimal structure of the insurance portfolio. These recommendations can be one of the means of the surveillance policy over insurance companies. The orientation of the insurance company to certain types of insurance determines the stability of its functioning. In this regard, the Bank of Russia should develop an early warning system for disrupting the smooth functioning of the insurance company due to an incorrect focus on certain types of insurance. 

1. Masino M.N., Larionov A.V. The Methodology of risk-management process implementation in Russian banking sector. Upravlenie finansovimi riskami. 2016;(4):288–297. (In Russ.).

2. BelousovaV.Yu., Kozir I.O. How do macroeconomic variables influence the Russian banking profitability? Journal Novoi economicheskoy assoziazii. 2016;(2):129–131. (In Russ.).

3. Birukova O.V.The Participation of Russia in the international insurance market. Vestnik Universiteta (Gosudarstveniy universitet upravlenia). 2010;(9):129–131. (In Russ.).

4. Sharpe I.G., Stadnik A. Financial Distress in Australian General Insures. Journal of Risk and Insurance. 2007:74(2):377–399.

5. Stoyanova R., Gruendl H. Solvency II: A Driver for Mergers and Acquisitions? Geneva papers on Risk and Insuranceissues and practice. 2014;39(3):417–439.

6. LiebenbergA.P., Sommer D.W. Effects of Corporate Diversification: Evidence from the Property-Liability Insurance Industry. Journal of Risk and Insurance. 2008;75(4):893–919.

7. Rebel C.A., Qiongbing Wu.Is hazard or probit more accurate in predicting financial distress? Evidence from U.S. bank failures. 2009. Munich Personal RePEc Archive. URL: https://mpra.ub.uni-muenchen.de/29182/

8. Rajan U., Seru A., Vig V. The failure of models that predict failure: Distance, incentives, and defaults. Journal of Financial Economics. 2015;115(2):237–260.

9. Kobayashi S.Insurance and financial stability, Implications of the Tsunami view for regulation and supervision of insures. Journal of Financial Regulation and Compliance. 2017;25(1).

10. Chien-Chiang Lee, Chun-Wei Lin, Jhih-Hong Zeng. Financial liberalization, insurance market, and the likelihood of financial crisis, Journal of International Money and Finance. 2016;(62):25–51.