Financial Risk and Stability Assessment of Insurance Firms in Mongolia

Abstract

This study investigates the determinants of financial stability in the Mongolian insurance sector using firm-level panel data from 16 insurance companies over the period 2016-2021. Financial stability is measured using Return on Assets (ROA), Return on Equity (ROE), and the Altman Z-score. A fixed-effects panel regression approach is employed to examine the effects of profitability, firm size, liquidity, reserve ratios, capital structure, investment levels, and the COVID-19 pandemic on financial stability. The results show that profitability, investment strength, and capitalization significantly enhance financial stability, while excessive reserves and high liquidity levels may adversely affect certain performance indicators. Firm size improves solvency but is associated with lower asset efficiency. The COVID-19 pandemic has a negative and significant effect on the Z-score, indicating heightened insolvency risk during the crisis. These findings provide valuable insights for strengthening risk management practices, improving financial policies, and informing regulatory strategies aimed at enhancing stability in the insurance sector.