Risk-Based Capital Analysis in Punitive Damages Litigation

摘要

This article introduces risk-based capital analyses as a new methodology for forensic accountants to consider when hired in punitive damages cases. In addition, it performs a study to determine whether this analysis would be appropriate. In this non-experimental quantitative study, the full population of insurance companies rated by A.M. Best Company and the full population of depository institutions operating from 2007 through 2011 were selected to examine. Data was collected for the five year review period covering 2007 through 2011. Logistic regression was used with archived data to determine whether insolvency rates or financial strength ratings are significantly related to an organization's risk-based capital position. We show a significant relationship exists in each year between risk-based capital ratios and the insolvency status of property/casualty insurance companies, life/health insurance companies, and depository institutions as evidenced by a p-value in each analysis < 0.01. We also report there is a significant relationship in each year between the risk-based capital ratios and the financial strength ratings of property/casualty and life/health insurance companies as evidenced by a p-value in each analysis < 0.01. This study concludes that risk-based capital levels are a reliable foundation upon which to offer an opinion.