Pakhomov Maksym, Postgraduate student Department of Accounting and Finance,National Technical University “Kharkiv Polytechnic Institute”, Kharkiv, Ukraine

ORCID: 0009-0004-9133-3333
e-mail: Maksym.Pakhomov@emmb.khpi.edu.ua

Iershova Natalia, Doctor of Economic Sciences, Associate Professor,  Professor of the Department of Finance and Economics, National Technical University “Kharkiv Polytechnic Institute”, Kharkiv, Ukraine

ORCID: 0000-0003-3544-3816
e-mail: natalia.iershova@khpi.edu.ua

Counterparty Default Risk Management System according to Solvency II Standards

Abstract. Introduction. The article examines the nature and significance of counterparty default risk in the Solvency II system as one of the key components of the financial stability of insurance companies. This risk arises in cases where a counterparty — a reinsurer, bank, broker or other partner — fails to meet its financial obligations, which can lead to loss of assets and deterioration of the insurer’s solvency. The article emphasizes that effective management of this risk involves a systematic approach – a combination of preliminary analysis of counterparties, portfolio diversification and constant monitoring of the financial condition of partners. Such measures not only reduce the likelihood of losses, but also strengthen the trust in the insurer on the part of regulators, investors and customers.

Purpose. The purpose of this article is to study the risk of counterparty default within the framework of Solvency II requirements, analyze existing approaches to its assessment, and also identify areas for improving the system for managing this risk in insurance companies.

Results. Counterparty default risk is a byproduct of dealing with each of these groups. Inevitably, some counterparties may default, miss, or significantly delay payments at a time when they are critically needed. Without adequate loss protection mechanisms, counterparty default can result in potentially significant financial losses for the insurance company.

Conclusions. Counterparty default risk is of great importance for an insurance company. It affects its solvency and stability. The Solvency II approach helps to assess this risk, but remains complex and dependent on credit ratings. This creates difficulties and does not always accurately reflect the real financial condition of counterparties.

Keywords: Solvency II, counterparty default risk, financial risk, solvency, SCR, risk management, insurance companies.

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