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Analysing the Determinants of Credit Risk for General Insurance Firms in the UK

Guglielmo Maria Caporale, Mario Cerrato and Xuan Zhang

No 1591, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper estimates a reduced-form model to assess the credit risk of General Insurance (GI) non-life firms in the UK. Compared to earlier studies, it uses a much larger sample including 30 years of data for 515 firms, and also considers a much wider set of possible determinants of credit risk. The empirical results suggest that macroeconomic and firm-specific factors both play important roles. Other key findings are the following: credit risk varies across firms depending on their business lines; there is default clustering in the GIindustry; different reinsurance levels also affect the credit risk of insurance firms. The implications of these findings for regulators of GI firms under the coming Solvency II are discussed.

Keywords: Insolvent; Doubly Stochastic; Insurance; Reinsurance (search for similar items in EconPapers)
JEL-codes: G22 C58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-ias, nep-rmg and nep-sbm
Date: 2016
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