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Journal of Banking & Finance Vol. 84 2017

Analysing the determinants of insolvency risk for general insurance firms in the UK

Guglielmo Maria Caporale1; Mario Cerrato2; Xuan Zhang3,4

1 Brunel University of London · 2 University of Glasgow · 3 Nanjing Audit University · 4 Institute of Economics

open access

Abstract

This paper estimates a reduced-form model to assess the insolvency risk of General Insurance (GI) firms in the UK. In comparison 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 insolvency risk. The empirical results suggest that macroeconomic and firm-specific factors both play important roles. Other key findings are the following: insolvency risk varies across firms depending on their business lines; there is default clustering in the GI industry; different reinsurance levels also affect the insolvency risk of insurance firms. The implications of these findings for regulators of GI firms under the newly launched Solvency II are discussed.

DOI
10.1016/j.jbankfin.2017.07.011
Volume
84
Pages
107-122
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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