An evaluation of the financial soundness of insurance firms in the Amman Stock Exchange

  • Received January 20, 2022;
    Accepted March 31, 2022;
    Published April 5, 2022
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/ins.13(1).2022.02
  • Article Info
    Volume 13 2022, Issue #1, pp. 11-20
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Financial soundness of insurance firms within a country tends to heavily affect its financial environment. This study will further assess the relationship between both factors with the support of a special model to test the financial soundness of insurance companies. The model could be utilized as an indicator of the stabilization of a country’s financial environment; this is done by testing the insurance companies’ falls. The methodology used was discriminant regression on the Amman Stock Exchange (ASE) to test 12 indicators that were derived from six CARMEL model parameters. The six tested parameters were: capital adequacy, asset quality, reinsurance and actuarial issues, management efficiency, earnings and profitability, and liquidity. The results have shown that 10 out of 12 indicators are significant factors. Additionally, the study proved that the CARMEL model is an applicable model to test the financial soundness of ASE insurance companies, the possibility of detecting a deviation between the actual and expected performance was barely minimum. The effect of deviation was present in eight firms out of 19, three of which were affected by the type II error (riskier deviation). The study concluded that the CARMEL model is a significant model, and the insurance firms that follow the Jordan Insurance Federation (JIF) requirements are financially sound.

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    • Table 1. Descriptive statistics
    • Table 2. Test of means’ equality
    • Table 3. Correlation matrix
    • Table 4. Covariance matrices equality
    • Table 5. Canonical discriminant functions
    • Table 6. Classification statistics results
    • Table 7. Performance vs. predicted performance
    • Conceptualization
      Hussein Mohammad Salameh
    • Data curation
      Hussein Mohammad Salameh
    • Formal Analysis
      Hussein Mohammad Salameh
    • Investigation
      Hussein Mohammad Salameh
    • Methodology
      Hussein Mohammad Salameh
    • Project administration
      Hussein Mohammad Salameh
    • Resources
      Hussein Mohammad Salameh
    • Software
      Hussein Mohammad Salameh
    • Supervision
      Hussein Mohammad Salameh
    • Validation
      Hussein Mohammad Salameh
    • Visualization
      Hussein Mohammad Salameh
    • Writing – original draft
      Hussein Mohammad Salameh