Financial Stability of the Czech Insurance Business

Insurance business is one of the fastest growing sectors of the Czech economy. Growth of this sector is very important, but financial stability of individual subjects acting on this market are also very important. Financial stability and its analysis have become one of the key task for the Czech National Bank (CNB) and other national and international institutions during the past few years. Nowadays insurance companies use a large scale of indicators for assessing financial stability. The disclosure of weaknesses in a financial sector and its linkages to development on financial markets and in economic development can contibute to constraint risk connected with it. As a final effect, this can lead to stronger resistance of the financial system against shocks. As indicators of financial stability power in the insurance business are above all considered return on equity, solvency, and capital accuracy. These ones are generally acknowledged financial stability indicators of insurance companies, which are included in European Commission study called Solvency II. For example the insurance companies in the Czech insurance market fulfil criterion of solvency (according to audit results for the year 2006) very well, because their own sources were higher within the level of required solvency rate (100%). Aggregate disponible solvency for all insurance companies was according to recent legal rules three times higher than required solvency in the market of life insurance and 3,3 times in the market of nonlife insurance. This paper deals with the assesment of insurance companie´s financial stability in the Czech insurance market from the point of view of return on equity, solvency, and capital accuracy indicators. It also recommends optimal capital ratio for the Czech insurance companies, which was calculated on real data.