Press Release

2018 Begins with Increased Volatility
and Slight Improvement in Corporate Credit Quality

Kamakura Troubled Company Index Decreases by 0.08% to 8.81%

NEW YORK, February 2, 2018: The Kamakura “troubled company” index ended January at 8.81%, a decrease of 0.08% from the previous month. The index reflects the percentage of 39,000 public firms with a default probability of over 1%. An increase in the index reflects declining credit quality, while a decrease reflects improving credit quality.

At the close of January, the percentage of companies with default probabilities between 1% and 5% was 7.30%—an increase of 0.04% over the previous month. The percentage with default probabilities between 5% and 10% was 1.09%, a decrease of 0.10%. Those with a default percentage between 10% and 20% amounted to 0.33% of the total, down 0.01%, and those with default probabilities over 20% were .09%, down 0.01% from last month. Volatility increased during the month, with the index ranging from 7.00% on January 15 to 9.09% on January 29.

At 8.81%, the troubled company index is at the 74th percentile of historical credit quality as measured since 1990. Among the ten riskiest-rated firms listed in January, six are in the United States, two are in Great Britain, one is in in Australia, and one is in Singapore. Icionix Brand Group, (NASDAQ:ICON) became the riskiest global company, with a one-year Kamakura Default Probability (KDP) of 49.17%. In January there were four defaults in Kamakura’s coverage universe.

The Kamakura expected 10-year cumulative default rate for all rated companies world-wide improved by 1.66% to 12.23% at the end of the month.

“January closed with a rebound from losses earlier in the week in equities and continued selling in US Government bonds” said Martin Zorn, President and Chief Operating Officer for Kamakura Corporation.

The yield on the 10-year U.S. Treasury closed at 2.725%, its highest level since April, 2014. German five-year bond yields turned positive during the month for the first time since 2015. Japanese inflation is closing in on the BOJ targets. On the one hand, these moves reflect accelerating global growth. But they also reveal concerns about a jump in the U.S. budget deficit. Against this backdrop, the Morgan Stanley Financial Conditions Index reveals that credit conditions are the loosest in decades.

Rising rates have historically been good for banks, given widening spreads and a vibrant economy. But this time, the situation may be different. With e-banking, it is just as easy for consumers to open a CD or money market account at an institution halfway across the country as it is for them to go to the bank across the street, resulting in increased deposit velocity. Hence, deposit rates may increase much more quickly than they have in past cycles.

Against this backdrop, portfolio managers need to closely examine the models they are using for stress-testing their portfolios. They should revisit not only their model constructs, but also the assumptions they incorporate into their analysis. As our cumulative default probabilities show, there are risks in the credit markets, especially as you look at longer-term effects. With the implementation of IFRS9 and CECL, the effect of lifetime losses becomes more critical to underwriting and exposure management.

About the Troubled Company Index

The Kamakura troubled company index measures the percentage of 39,000 public firms in 68 countries that have an annualized one- month default risk of over one percent. The average index value since January, 1990 is 14.56%. Since November, 2015, the Kamakura index has used the annualized one-month default probability produced by the KRIS version 6.0 Jarrow-Chava reduced form default probability model, a formula that bases default predictions on a sophisticated combination of financial ratios, stock price history, and macro-economic factors.

The KRIS version 6.0 models were developed using a data base of more than 2.2 million observations and more than 2,600 corporate failures.  A complete technical guide, including full model test results and parameters, is provided to subscribers. The KRIS service also includes a wide array of other default probability models that can be seamlessly loaded into Kamakura’s state-of-the-art enterprise risk management software engine, the Kamakura Risk Manager. Available models include the non-public-firm default model, the commercial real estate model, the U.S. bank model, and the sovereign model.  Related data includes credit default swap trading volume by reference name, market implied credit spreads, and prices on all traded corporate bonds traded in the U.S. market.  Macro factor parameter subscriptions include Heath, Jarrow, and Morton term structure models for government securities in the U.S., Germany, the UK, Canada, Spain, Sweden, Australia, Japan, Thailand, and Singapore.  All parameters are derived in a no-arbitrage manner consistent with seminal papers by Heath, Jarrow, and Morton, as well as Amin and Jarrow.  A KRIS Macro Factor Scenario Service subscription includes both risk-neutral and “real world” empirical scenarios for interest rates and macro factors.

The version 6.0 model was estimated over the period from 1990 to May, 2014, and includes the insights of the entirety of the recent credit crisis. The 68 countries currently covered by the index are:  Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, Cyprus, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Malta, Mexico, Nigeria, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the UK, the U.S., and Vietnam.

To follow the troubled company index and other risk commentary by Kamakura on a daily basis, please follow:

Kamakura CEO Dr. Donald van Deventer (
Kamakura President Martin Zorn ( and
Kamakura’s official twitter account (

About Kamakura Corporation
Founded in 1990, Honolulu-based Kamakura Corporation is a leading provider of risk management information, processing, and software. Kamakura was named to the World Finance 100 by the editor and readers of World Finance magazine in 2017,2016 and 2012. In 2010, Kamakura was the only vendor to win two Credit Magazine innovation awards. Kamakura Risk Manager, first sold commercially in 1993 and now in version 10, is the first enterprise risk management system for users focused on credit risk, asset and liability management, market risk, stress testing, liquidity risk, counterparty credit risk, and capital allocation from a single software solution. KRIS public firm default service was launched in 2002. The KRIS sovereign default service, the world’s first, was launched in 2008, and the KRIS non-public firm default service was offered beginning in 2011. Kamakura added its U.S. Bank default probability service in 2014.

Kamakura has served more than 330 clients with assets ranging in size from $1.5 billion to $1.6 trillion. Its risk management products are currently used in 47 countries, including the United States, Canada, Germany, the Netherlands, France, Austria, Switzerland, the United Kingdom, Russia, Ukraine, South Africa, Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka, Taiwan, Thailand, Vietnam, many other countries in Asia, Europe and the Middle East.  

Kamakura has world-wide alliances with Fiserv ( and SCSK Corporation ( making Kamakura products available in almost every major city around the globe.

For more information, please contact:

Kamakura Corporation
2222 Kalakaua Avenue, Suite 1400, Honolulu, Hawaii 96815
Telephone: 1-808-791-9888
Facsimile: 1-808-791-9898
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