The development of a simple and intuitive rating system under Solvency II


Van Laere, Elizabeth and Baesens, Bart (2010) The development of a simple and intuitive rating system under Solvency II. Insurance: Mathematics and Economics, 46, (3), 500-510. (doi:10.1016/j.insmatheco.2010.01.008 ).

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Description/Abstract

Regulatory authorities pay considerable attention to setting minimum capital levels for different kinds of financial institutions. Solvency II, the European Commission’s planned reform of the regulation of insurance companies is well underway. One of its consequences will be a shift in focus to internally based models in determining the regulatory capital needed to cover unexpected losses. This evolution emphasises the importance of credit risk assessment through internal ratings. In light of this new prudential regulation, this paper suggests a Basel II compliant approach to predicting credit ratings for non-rated corporations and evaluates its performance compared to external ratings. The paper provides an interesting modelling of non-financial European companies rated by S&P. In developing the model, broad applicability is set as an important boundary condition. Even though the model developed is fairly simple and maintains a high level of granularity, it gives high rates of accuracy and is very interpretable

Item Type: Article
ISSNs: 0167-6687 (print)
Keywords: solvency II, insurance, credit scoring, external ratings, internal ratings
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Divisions: University Structure - Pre August 2011 > School of Management
Faculty of Business and Law > Southampton Management School
ePrint ID: 80322
Date Deposited: 24 Mar 2010
Last Modified: 27 Mar 2014 19:03
URI: http://eprints.soton.ac.uk/id/eprint/80322

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