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The Solvency II regulatory framework requires European insurance companies to guarantee their solvability and stability by retaining enough Own Funds to cover future unexpected losses at a given confidence level. A Standard Formula approach is provided to estimate the capital requirement needed. Still, Solvency II allows internal methodologies to quantify the capital absorption arising from specific risk types or even to replace the Standard Formula with a full internal model. This work proposes a new internal model approach to measure the Catastrophe Recession Risk. The Recession Risk implies a mandatory capital absorption component for the insurance companies operating in the credit and suretyship business. The proposed model is based on the CreditRisk+ model and designed to behave countercyclically, aligning with the original intent of the European supervisory authority when first introducing this risk into the Solvency II risks' taxonomy. Additionally, the model is applied to define an index for monitoring future recession crises based on the time series of past default rates. [ABSTRACT FROM AUTHOR]

Public works contracts are commonly priced and awarded through a tender process. Each bidder joining the tender must underwrite a bid bond that guarantees their fitness as contractors in case of a win. The winning contractor also needs to underwrite a performance bond before entering the contract to protect the procuring entity against the performance risk arising during the execution phase. This study addresses the case when sureties refuse to issue the performance bond, despite having issued a bid bond to the same subject. A creditworthiness variation of the contractor during the tender or an excessive discount of the contract's price may lead to this outcome. In that case, all the subjects involved are damaged. The surety who issued the bid bond has to indemnify the procuring entity. The contract award is nullified, which is financially harmful to both the contractor and the procuring entity. We show that sureties adopting a forward-looking risk appetite framework may prevent the demand for unsustainable performance bonds instead of addressing it by rejecting the bidders' requests. The Solvency II regulatory framework, the Italian bidding law, and actual historical data available from the Italian construction sector are considered to specify a simplified model. The probability of unsustainable tender outcomes is numerically estimated by the model, together with the mitigating impact of a surety's proper strategy. [ABSTRACT FROM AUTHOR]