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The purpose of this paper is to assess and compare the forecast ability of existing credit risk models, answering three questions: Can these methods adequately predict default events? Are there dominant methods? Is it safer to rely on a mix of methodologies?

The authors examine four existing models: O-score, Z-score, Campbell, and Merton distance to default model (MDDM). The authors compare their ability to forecast defaults using three techniques: intra-cohort analysis, power curves and discrete hazard rate models.

The authors conclude that better predictions demand a mix of models containing accounting and market information. The authors found evidence of the O-score's outperformance relative to the other models. The MDDM alone in the sample is not a sufficient default predictor. But discrete hazard rate models suggest that combining both should enhance default prediction models.

The analysed methods alone cannot adequately predict defaults. The authors found no dominant methods. Instead, it would be advisable to rely on a mix of methodologies, which use complementary information.

Better forecasts demand a mix of models containing both accounting and market information.

The findings suggest that more precise default prediction models can be built by combining information from different sources in reduced-form models and combining default prediction models that can analyze said information.

The purpose of this paper is to examine empirically whether the market discipline works, and if so, whether it is a complement or substitute of prudential regulation in the insurance markets. Market discipline is intended as “the power of … market forces … to evaluate and control the risky behaviour of the financial institutions”. The authors' formal hypothesis is that if market discipline works as complementary to prudential regulation, the response of the insured is expected to be weaker than if market discipline acts as a substitute to prudential regulation.

The authors designed an experiment examining policy subscription reaction to adjustments in insurers' risk ratings in three different regulatory environments, to compare market discipline in each market. An econometric model was estimated to test the reaction of policy subscription to changes in credit ratings of the insurers.

The findings indicate that more market discipline was exerted in the crisis period, and more intensely where it is intended to replace regulation. A formal hypothesis was tested: in a less regulated environment, consumers' protection rests more heavily on their caution and use of market information about the insurers' financial condition.

The research is constrained by the availability and detail of the publicly available data.

The results imply that regulation and market discipline work more as complements than as substitutes.

Market discipline does not replace prudential regulation in the insurance market.

The approach presented in the paper adds to precedent work studying comparatively different regulatory environments, and also concerns the response of market discipline in the financial crisis context.