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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), pp. 500-510. (doi:10.1016/j.insmatheco.2010.01.008).

Record type: Article

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

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Published date: 8 February 2010
Keywords: solvency II, insurance, credit scoring, external ratings, internal ratings
Organisations: Southampton Business School

Identifiers

Local EPrints ID: 80322
URI: http://eprints.soton.ac.uk/id/eprint/80322
ISSN: 0167-6687
PURE UUID: 0c8272fc-72db-442f-88ab-e77c3b00e051

Catalogue record

Date deposited: 24 Mar 2010
Last modified: 18 Jul 2017 23:13

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Contributors

Author: Elizabeth Van Laere
Author: Bart Baesens

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