Subject The article examines the influence of external environment on insurance company stability. Objectives The study aims to provide the Bank of Russia and insurance companies with a tool to analyze financial stability of insurers. Methods I review and systematize the ISO recommendations to identify parameters of external environment that determine the probability of financial destabilization of insurance companies. Using the binary probit regression, I reveal external macroeconomic factors that positively or negatively affect the stability of insurance companies. The level of influence of each indicator is estimated through calculation of marginal effects. Results The paper demonstrates that external environment affects the financial stability of insurance companies. The insurers' stability is affected by the demand for insurance services and the amount of payments. Furthermore, the activity of insurance companies is closely related to the condition of the banking system, which can be seen as a related industry. Conclusions External environment is a significant factor in determining the probability of default of the insurance company, and the Bank of Russia should take it into account. Insurance companies should classify the areas of activity based on risk exposure for their business. The findings may be useful for insurance companies monitoring by the Bank of Russia. The indicators of external environment can complement projection models of the Bank of Russia to increase the accuracy of forecasts. Insurance companies may apply the findings in their internal risk assessment.
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