Solvency surveillance and financial crisis: evidence from the Spanish insurance industry

This paper provides evidence on factors affecting the level of the regulatory solvency ratio of Spanish insurers from 2005-2012 by employing the two-step system generalised method of moments in the analysis. Results show a significant degree of persistence in the regulatory solvency ratio. Cost frontier efficiency, reinsurance utilisation, premiums growth as well as the form of stock insurers negatively affect the level of the regulatory solvency ratio. These identified firm-level characteristic affecting the level of the regulatory solvency ratio are robust across crisis and non-crisis periods. However, the effect of cost frontier efficiency on the level of the regulatory solvency ratio is greater for mutuals than for stocks.