Financial Intermediary and Insurance Companies: Assessing Financial Stability

In modern fast changing world financial institutions are exposed to a big variety of risks, which shall be properly addressed. In these circumstances it is vitally important to predict the risks and understand how each of them can affect the company's financial stability. Among the approaches assessing financial stability of a financial intermediary, CAMELS rating system is considered by leading research agencies (such as CFI and Bloomberg) to be one of the most universal one. Although the approach is used mainly to analyse banks, components of CAMELS rating are applicable to insurance companies. The aim of this study was to analyse global and Russian insurance markets and confirm or refute the hypothesis that CAMELS rating system can be applied for evaluation of financial stability of specific Russian insurance companies. Application of CAMELS method showed that Russian insurance companies, especially those that are not part of globally integrated structures, are not in a strong financial position. Companies being members of business groups, although being exposed to group-related risks, at the same time have some protection from the negative impact of external factors due to group resources and ability to attract financial resources from more financially sustainable affiliated companies. The study led to the conclusion that Russian insurance companies need to implement international business standards for insurance companies (like those investigated by the study) to become financially stronger.