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APRA's Expert Judgment Ratings and Solvency Cover of Australian General Insurers

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  • Ian G. Sharpe
  • Andrei Stadnik

Abstract

The Australian Prudential Regulation Authority's (APRA's) supervisors use expert judgment to rate the risk of failure of general insurers (GIs). Using statistical data, we model the determinants of GI ratings and solvency cover and find: (1) sufficient predictive power in statistical data to identify GIs for earlier review and assist in quality assurance of APRA's ratings and (2) that profitability, solvency cover, investment, and underwriting risk play different roles in rating foreign branch and Australian‐incorporated GIs. We conclude that supervisors generally correctly incorporate our a priori expectations of the effects of risk indicators on GI risk into their ratings.

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  • Ian G. Sharpe & Andrei Stadnik, 2008. "APRA's Expert Judgment Ratings and Solvency Cover of Australian General Insurers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(3), pages 593-616, September.
    • Handle: RePEc:bla:jrinsu:v:75:y:2008:i:3:p:593-616
    DOI: 10.1111/j.1539-6975.2008.00276.x
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    References listed on IDEAS

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    1. Cummins, J. David & Harrington, Scott E. & Klein, Robert, 1995. "Insolvency experience, risk-based capital, and prompt corrective action in property-liability insurance," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 511-527, June.
    2. Ian G. Sharpe & Andrei Stadnik, 2007. "Financial Distress in Australian General Insurers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(2), pages 377-399, June.
    3. Renbao Chen & Kie Ann Wong, 2004. "The Determinants of Financial Health of Asian Insurance Companies," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 469-499, September.
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