Leverage, Interest Rates, and Workers’ Compensation Survival
Potential insolvency has always played an important role in insurance regulation. In fact, concerns about the public interest are such that the insurance industry is required to establish guarantee funds so that, in the event a particular company is unable to meet its obligations to policyholders, the insureds would still be covered. Even so, the number and magnitude of insurance carrier insolvencies have risen dramatically in the past few years. Probably the most serious was the Mission Insurance Company in 1987. The original cost was estimated at $520 million, which has since grown to be in excess of $1.5 billion (New York Times, November 15, 1988). In addition, the size of the guarantee funds has grown eleven-fold in just the past four years to approximately $917 million in 1987.
KeywordsLoss Ratio Contingency Factor Worker Compensation Compensation Insurance Investment Income
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