APRA?s Expert Judgement Ratings and Solvency cover of Australian general Insurers
Ian Sharpe and Andre Stadnik
The Australian Prudential Regulation Authority?s (APRA?s) supervisors use expert judgement to rate risk of failure (ROF) of General Insurers (GIs). Using statistical data we model the determinants of GI ratings and solvency cover and find: (i) sufficient predictive power in statistical data to identify GIs for earlier review and assist in quality assurance of APRA?s ratings; and (ii) 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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