Past research studies have documented the failure of the Insurance Regulatory Information System (IRIS) to provide adequate warning of insurer financial distress or insolvency. As a result, scholars have examined alternative parametric and nonparametric models to predict insurer insolvency. This study uses a neural network, a non-parametric alternative to past techniques, and shows how this met...

We propose a unified structural credit risk model incorporating insolvency, recovery and rollover risks. The firm finances itself mainly by issuing shortand long-term debt. Short-term debt can have either a discrete or a more realistic staggered tenor structure. We show that a unique threshold strategy (i.e., a bank run barrier) exists for short-term creditors to decide when to withdraw their f...

During some recent financial crises, the majority of domestic banks or indeed the entire banking sector became insolvent. We have analyzed the welfare effects of policy responses to bank insolvency by examining a modified version of the Diamond-Rajan model, introducing a fiat currency. The sources of inefficiency in our model are the ”moral hazard in banking” and the “premature liquidation of b...

In order to protect the public's confidence in deposit money, governments usually guarantee bank deposits implicitly or through an explicit deposit insurance system. Thus bank insolvency does not induce immediate bank runs. In many episodes of banking crises, several years passed quietly after bank insolvency had occurred, with the insolvency continuing to develop under the surface, and the ras...

There have been a number of studies that have sought to understand the pattern of aggregate business failure rates and model the macro-economic determinants of aggregate corporate liquidations in the UK. This paper uses quarterly data (1961.1-1998.2) on failure rates and potential macroeconomic determinants to build a time-series econometric model which explicitly tests for the impact of change...

Two competing approaches to setting risk-based capital (RBC) parameters are the traditional probability of ruin approach and the more recent expected policyholder deficit (EPD) ratio approach. The probability of ruin approach develops capital standards based on a fixed maximum probability of insolvency regardless of risk. The EPD ratio approach allows tradeoffs between the risk of insolvency an...

This article introduces a neural network artificial intelligence model as an early warning system for predicting insurer insolvency. In order to investigate a firm's propensity toward insolvency, a feed forward, back-propagation methodology is applied to financial data two years prior to insolvency for a sample of U.S. property-liability insurers that became insolvent in 1991 or 1992 and a size...

* University Senior Lecturer, Faculty of Law and Research Associate, Centre for Business Research, University of Cambridge; Research Associate, European Corporate Governance Institute. ** Associate Professor, Department of Accounting, National Taiwan University; formerly Research Fellow, Centre for Business Research, Cambridge University. *** Geldards LLP Professor of Corporate and Insolvency L...

This paper integrates notions of insolvency, trigger events, and consumer risk posture into the theory of single-family mortgage default. It presents a traditional consumeror choice-theoretic framework that recognizes common elements of mortgage optionality alongside insolvency, income, house price, and interest rate variables. Two motivations for mortgage default, insolvency and exercise of a ...

Prediction of insurance companies insolvency has arised as an important problem in the field of financial research, due to the necessity of protecting the general public whilst minimizing the costs associated to this problem. Most methods applied in the past to tackle this question are traditional statistical techniques which use financial ratios as explicative variables. However, these variabl...