This paper investigates the robustness of the Solvency Capital Requirement (SCR) when a log-normal reference model is slightly disturbed by the heaviness of its tail distribution. It is shown that situations with “almost” lognormal data and a rather important variation between the “disturbed” SCR and the reference SCR can be built. The consequences of the estimation errors on the level of the S...

Countries may face debt problems for periods when the long-run solvency condition about current account deficits holds. Using Markov Switching model, the econometric methodology proposed in this study allows us to distinguish periods that are associated with unsustainable outcomes from those in which the solvency condition holds. Analyzing Turkey’s current account deficits between 1987:4 and 20...

Limited liability and asymmetric information between an investment bank and its lenders provide an incentive for a bank to undercapitalise and finance overly risky business projects. To counter this market failure, national governments have imposed solvency constraints on banks. However, these constraints may not survive in systems competition, as systems competition is likely to suffer from th...

We examine properties of risk measures that can be considered to be in line with some ‘best practice’ rules in insurance, based on solvency margins. We give ample motivation that all economic aspects related to an insurance portfolio should be considered in the definition of a risk measure. As a consequence, conditions arise for comparison as well as for addition of risk measures. We demonstrat...

In the Solvency II framework, insurance companies need to calculate the Best Estimate valuation of Liabilities (BEL) and the Market Value Margin (MVM) for non-hedgeable insurancetechnical risks. The Cost-of-Capital approach defines the MVM as the present value of the current and future Solvency Capital Requirement (SCR) of the non-hedgeable risks to protect against adverse developments in the r...

Basel III, regulating the solvency of banks, is to be fully implemented by 2027 while Solvency III directed at insurers being prepared. In view past experience, it will closely modelled after III. This raises two questions. (i) Will and more successful than their predecessors? (ii) Is appropriate continue banks in same way? The first question motivated an earlier finding that I II risked induci...