"Life Insurer Risk Characteristics and the Rating Process,"
Journal of Insurance Issues, Steven
W. Pottier. Fall 1997, Vol. XX, No. 2, pp. 111-130.
This study examines the relation between insurer risk characteristics and financial
ratings. Measures of liquidity risk, investment risk, operating risk and financial risk
are found to be significantly related to insurer ratings. An ordered logit model predicts
ratings of newly rated insurers better than a naive model. However, a naive model
outperforms the logit model for currently rated insurers. A rating proxy variable
indicates that unrated insurers would have a much higher frequency of lower ratings than
rated insurers, providing a potential explanation for why unrated insurers do not apply
for a rating.