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{"id":21581,"date":"2026-04-04T11:35:13","date_gmt":"2026-04-04T08:35:13","guid":{"rendered":"https:\/\/modecon.mnau.edu.ua\/?p=21581"},"modified":"2026-04-04T11:35:13","modified_gmt":"2026-04-04T08:35:13","slug":"counterparty-default-risk-management-system","status":"publish","type":"post","link":"https:\/\/modecon.mnau.edu.ua\/en\/counterparty-default-risk-management-system\/","title":{"rendered":"Pakhomov M., Iershova N. Counterparty Default Risk Management System according to Solvency II Standards"},"content":{"rendered":"

[vc_row][vc_column][vc_column_text]<\/p>\n\n\n\n
JEL Classification:<\/strong> G32, G22, G28<\/span><\/i>.<\/span><\/i><\/td>\nDOI<\/b>: https:\/\/doi.org\/10.31521\/modecon.V55(2026)-29<\/a><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

[\/vc_column_text][vc_column_text]Pakhomov Maksym, <\/b>Postgraduate student Department of Accounting and Finance,National Technical University “Kharkiv Polytechnic Institute”,<\/span> Kharkiv, Ukraine<\/span><\/p>\n

ORCID:<\/strong> 0009-0004-9133-3333<\/span><\/a>
\ne-mail: <\/strong>Maksym.Pakhomov@emmb.khpi.edu.ua<\/span><\/a><\/p>\n

Iershova Natalia, <\/b>Doctor of Economic Sciences, Associate Professor,\u00a0 Professor of the Department of Finance and Economics, National Technical University “Kharkiv Polytechnic Institute”, Kharkiv, Ukraine<\/span><\/p>\n

ORCID:<\/strong> 0000-0003-3544-3816<\/span><\/a>
\ne-mail: <\/strong>natalia.iershova@khpi.edu.ua<\/span><\/a><\/p>\n

 <\/p>\n

Counterparty Default Risk Management System according to Solvency II Standards<\/b><\/p>\n

Abstract. Introduction. <\/i><\/b>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 \u2014 a reinsurer, bank, broker or other partner \u2014 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.<\/span><\/i><\/p>\n

Purpose<\/i><\/b>. 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.<\/span><\/i><\/p>\n

Results<\/i><\/b>. 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.<\/span><\/i><\/p>\n

Conclusions<\/i><\/b>. 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.<\/span><\/i><\/p>\n

Keywords<\/i><\/b>: Solvency II, counterparty default risk, financial risk, solvency, SCR, risk management, insurance companies.<\/span><\/i><\/p>\n

References<\/b>:<\/strong><\/p>\n

    \n
  1. European Insurance and Occupational Pensions Authority (EIOPA). (2020). QIS5 technical specifications.<\/span><\/li>\n
  2. European Insurance and Occupational Pensions Authority (EIOPA). (2021). Solvency II \u2013 Final report on public consultation No. 14.<\/span><\/li>\n
  3. European Parliament and Council. (2009). Directive 2009\/138\/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II). Official Journal of the European Union, L 335\/1.<\/span><\/li>\n
  4. Basel Committee on Banking Supervision. (2011). Basel III: A global regulatory framework for more resilient banks and banking systems. Bank for International Settlements.<\/span><\/li>\n
  5. Boucher, C., Danielsson, J., Kouontchou, P. S., & Maillet, B. B. (2014). Risk models-at-risk. Journal of Banking & Finance, 44, 72\u201392. https:\/\/doi.org\/10.1016\/j.jbankfin.2014.03.019.<\/span><\/li>\n
  6. Crouhy, M., Galai, D., & Mark, R. (2024). The essentials of risk management (2nd ed.). McGraw-Hill Education. https:\/\/doi.org\/10.1036\/9781260453063.<\/span><\/li>\n
  7. Sandstr\u00f6m, A. (2017). Handbook of solvency for actuaries and risk managers: Theory and practice. CRC Press.<\/span><\/li>\n
  8. European Commission. (2019). Solvency II delegated regulation (EU) 2019\/35. Official Journal of the European Union.<\/span><\/li>\n
  9. Hull, J. C. (2022). Risk management and financial institutions (6th ed.). Wiley. https:\/\/doi.org\/10.1002\/9781119818267.<\/span><\/li>\n
  10. Swiss Re Institute. (2019). Counterparty credit risk management in insurance. https:\/\/www.swissre.com\/dam\/jcr:9ed1f94a-d3a9-4602-b42f-f2e24a6e589e\/2019-swissre-financial-condition-report.pdf.<\/span><\/li>\n
  11. Actuarial Post. (n.d.). Succeeding under Solvency II: Reinsurance \u2013 Counterparty risk. Retrieved September 11, 2025, from https:\/\/www.actuarialpost.co.uk\/article\/succeeding-under-solvency-ii:reinsurance—-counterparty-risk-343.htm.<\/span><\/li>\n
  12. Pakhomov, M., & Yershova, N. (2025). Assessment of insurer risks as a component of a comprehensive system for ensuring the solvency of insurance companies. In Problems and prospects for sustainable development of Ukraine in the aspect of synergy of integration of economy, business and HR-engineering (pp. 428\u2013430). Khmelnytskyi National University. Retrieved September 11, 2025, from https:\/\/bine.khmnu.edu.ua\/naukovi-konferencziyi-2\/<\/span><\/li>\n
  13. Pakhomov, M., & Yershova, N. (2024). Global trends in the insurance market development and prospects in Ukraine. Bulletin of the National Technical University \u201cKharkiv Polytechnic Institute\u201d (Economic Sciences), 1, 17\u201321. https:\/\/doi.org\/10.20998\/2519-4461.2024.1.17.<\/span><\/li>\n<\/ol>\n

    [\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_column_text]Received: <\/strong>23 February 2026<\/span><\/p>\n

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    Pakhomov M., Iershova N. (2026). Counterparty Default Risk Management System according to Solvency II Standards. Modern Economics, 55(2026), 208-213. DOI: https:\/\/doi.org\/10.31521\/modecon.V55(2026)-29.<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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    [vc_row][vc_column][vc_column_text] JEL Classification: G32, G22, G28. DOI: https:\/\/doi.org\/10.31521\/modecon.V55(2026)-29 [\/vc_column_text][vc_column_text]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,\u00a0 Professor of the Department of Finance and Economics, National Technical University “Kharkiv Polytechnic Institute”, Kharkiv, Ukraine ORCID: 0000-0003-3544-3816 e-mail:
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