RLS Yardsticks to Identify Financial Weakness

At the present time the regulators have two early warning systems to assist in identifying financially troubled insurers. These are the NAIC IRIS rations and the AIA Index of Financial Strength. This paper recommends a third. The goal of each of these systems is to identify the financially troubled company that can be helped to regain an acceptable financial footing. To identify financially strong companies serves little constructive purpose. The primary need is to identify those companies that can be salvaged. Quantitative yardsticks are never conclusive in themselves, nor will they uncover intentionally dishonest or fraudulent managements in sufficient time. The benefit, if there is to be any, will be in identifying potential insolvencies that can be prevented or identifying insolvencies so as to minimize further loss.