Robust Investment-Driven Insurance Pricing and Liquidity Management

Bingzheng Chen, Jan Dhaene, Chun Liu and Shunzhi Pang

Papers from arXiv.org

Abstract: This paper develops a dynamic equilibrium model of the insurance market that jointly characterizes insurers' underwriting, investment, recapitalization, and dividend policies under model uncertainty and financial frictions. Competitive insurers maximize shareholder value under a subjective worst-case probability measure, giving rise to liquidity-driven underwriting cycles and flight-to-quality behavior. While an equilibrium typically fails to exist in such dynamic liquidity management framework with external financial investment, we show that incorporating model uncertainty restores equilibrium existence under plausible parameter conditions. Moreover, the model uncovers a novel relationship between the correlation of insurance and financial market risks and the equilibrium insurance price: negative loadings may emerge when insurance gains and financial returns are positively correlated, contrary to conventional intuition.

Date: 2026-03
New Economics Papers: this item is included in nep-mic and nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2603.18962 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2603.18962

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().