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

Caporale, G. M., Cerrato, M. and Zhang, X. (2017) Analysing the determinants of insolvency risk for general insurance firms in the UK. Journal of Banking and Finance, 84, pp. 107-122. (doi: 10.1016/j.jbankfin.2017.07.011)

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.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Zhang, Mr Xuan and Cerrato, Professor Mario
• Authors: Caporale, G. M., Cerrato, M., and Zhang, X.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Journal of Banking and Finance
• Publisher: Elsevier
• ISSN: 0378-4266
• ISSN (Online): 1872-6372
• Published Online: 02 August 2017
• Copyright Holders: Copyright © 2017 The Authors
• First Published: First published in Journal of Banking and Finance 84: 107-122
• Publisher Policy: Reproduced under a Creative Commons License