Credit Insurance, Risk Mitigation Techniques and Economic Contribution

121 Pages Posted: 4 Aug 2014 Last revised: 18 Aug 2014

See all articles by Cengizhan Kaptan

Cengizhan Kaptan

Universidad Central de Nicaragua; Independent

Date Written: November 1, 2013

Abstract

This research study is an exploration of the function of credit insurance as a risk mitigation technique and capital relief instrument. Credit insurance is a widely used product in the industry and helps the insured parties shift or combine the risk of the debtor (their counterparty/ies) to or with the risk of the insurer. This research study is an exploration of the effects of insurance in financial markets and in terms of risk weight and economic aspects. A qualitative research was conducted through questionnaires and interviews; the targeted focus group were banks and insurance market players. The objective of this dissertation is clear: to explore the classical and comprehensive insurance policies covering the risk of a loan from the perspective of a bank that will be the insured party. Thus, the credit derivatives such as CDS are excluded from this research study since they are not insurance covers, as mentioned and indicated by the author in the relevant chapters. Aside from this, bond insurance is also excluded although some substantial parts of the loan-related insurance covers may be well applied to bonds too. The study also emphasizes that the risk does not end once any asset is insured but becomes the risk of the insurer, which is the new counterparty once the insurance policy is concluded. In this respect, the insured parties (financial institutions, mainly banks in this dissertation) should be cautious and properly analyze the insurers as well. The findings culminate in with the conclusion that, if properly done, credit insurance helps banks reduce their risk-weighted assets, hold adequate capital, and efficiently manage their risks and portfolio.

Keywords: credit insurance, risk mitigation, CRT, risk-weight, RWA, risk transfer

Suggested Citation

Kaptan, Cengizhan, Credit Insurance, Risk Mitigation Techniques and Economic Contribution (November 1, 2013). Available at SSRN: https://ssrn.com/abstract=2474657 or http://dx.doi.org/10.2139/ssrn.2474657

Cengizhan Kaptan (Contact Author)

Universidad Central de Nicaragua ( email )

De los semáforos del Zumen 3 Cuadras abajo
1 cuadra al lago, Pista Juan Pablo I
Managua, 12104
Nicaragua

Independent ( email )

Vienna
Austria

Register to save articles to
your library

Register

Paper statistics

Downloads
191
Abstract Views
1,048
rank
156,509
PlumX Metrics