Credit risk and solvency capital requirements

in European Actuarial Journal, 8 (2)

par Allali, Jérémy ; Le Courtois, Olivier (1975-....) ; Majri, Mohamed

2018 - 487-515 p. | En anglais

Credit risk permeates the assets of most insurance companies. This article develops a framework for computing credit capital requirements under the constant position paradigm and taking into account recovery rates. Although this framework was originally derived under the Solvency 2 regulation, it also provides concepts that can be useful under other international regulations. After a brief survey of the existing technology on rating transitions and default probabilities, the paper provides new results on risk premium adjustment factors. Then, three different procedures for reconstructing constant position market-consistent histories of credit portfolios from quoted Merrill Lynch indices are given. The reconstructed historical credit values are modeled via mixed empirical-Generalized Pareto Distribution (GPD) dynamics and a detailed parameter estimation is performed. Several validations of the estimation are also provided. Finally, credit Solvency Capital Requirements are computed and an analysis of the results per rating class is given.

Voir la revue «European Actuarial Journal»

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