Analysis of the Early Warning Indicators used in the Albanian Nonlife Insurance Market
The Role of the Early Warning Indicators in the Albanian Non-life Insurance Market
The Early Warning Tests (EWTs) are considered to be key indicators of the onset of financial weakening in general insurers. From the supervisory point of view, they serve a number of purposes, such as being part of the analysis of the financial returns within the supervisory process, being utilized in risk based supervision or in an early warning system, as well as enabling compliance with law requirements and regulations. The Early Warning Tests are considered to be a key constituent of the risk assessment methodology in Albania. The purpose of this paper is the thorough analysis of the insurance ratios used in the Albanian non-life insurance market, their drawbacks and recommendations towards the use of other indicators, which best capture the market specificity. It is very important to interpret individual ratio values in the context of the company business, management strengths and access to capital. From the analysis of the majority of the ranges for the Albanian market and individual companies' values, the majority of the market is "outside the range", putting a question mark on whether the right ranges are applied on the Albanian market or even if they are the right ratios to use on this specific market. the immaturity of the market makes it difficult to analyse the capital and technical provisions ratio, while the solvency ratio indicates that the solvency regime should be replaced with a more risk based approach, because the solvency ratio in the Albanian case is misleading, by giving a wrong impression that the actual solvency over the required solvency is high. Better indicators could be used to measure investment performance, while new ratios measuring liquidity, receivables and related party transactions could be introduced, which might be more useful on the Albanian specific market. (original abstract)
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