Credit Spread Shocks and the SCR Ratio of a Dutch Life Insurer: an Empirical Analysis

This research evaluates credit spread shocks and their influence on the SCR ratio of a Dutch life insurer. A comprehensive literature research on credit spread determinants is provided. A novel framework is created which summarizes the credit spreads of Insurer’s assets into a new variable using principal component analysis. After which the correlation against macroeconomic factors that are considered to be of significant influence on credit spreads according to literature is determined. This provided insight into the behavior of these correlations over the maturities. A recommendation on which macroeconomic factors can function as early-warning signs is given. The effect of credit spreads shocks on Insurer’s SCR ratio was evaluated using a sensitivity analysis, which provided insight into negative and positive scenarios of the determinants.