The integration of major financial risk exposure in the valuation procedure of the balance sheet is required by regulators. This paper investigates how the choice of financial data can impact the calibration and the simulation of credit spread (credit default) scenarios within an economic scenario generator, as well as the insurance liability valuation metrics. We discuss the following topics:
- Typical risk-neutral credit models considered by insurers
- Construction of S&P Global Market Intelligence spread market data
- Comparison of the calibration of credit models based on two different sources of data
- Impact study of the credit data on the insurance liability valuation
Impact of credit data for the valuation of insurance liabilities
In the valuation of insurance liabilities, using high-quality credit data reduces the need for excessive constraints in the calibration process.