The Relationship between Financial Solvency and Financial Variables of Insurance Companies

The main aim of this paper is to investigate the relationship between 7 financial variables and financial strength of active insurance companies in Iran. For this reason, financial variables including “investment performance”, “liquidity ratio”, “operating margin”, “composition ratio”, “loss ratio”, “underwriting profit”, and “size of the insurance company” are chosen. The investigation is done from 2011 to 2014. From the population of all active insurance companies, 17 companies are selected by screening which resulted in 68 company-year observations. The results using panel data estimation shows that except for “composition ratio”, other financial variables have significant relationships with the financial solvency margin. The above financial indicators explain 83.24 percent of variation in financial solvency margin. Thus, according to the research results, there is a significant relationship between financial solvency and 6 financial variables.