Evaluating Liquidation Strategies for Insurance Companies

Thomas R. Berry‐Stölzle

Journal of Risk & Insurance, 2008, vol. 75, issue 1, 207-230

Abstract: In this article, we examine liquidation strategies and asset allocation decisions for property and casualty insurance companies for different insurance product lines. We propose a cash‐flow‐based liquidation model of an insurance company and analyze selling strategies for a portfolio with liquid and illiquid assets. Within this framework, we study the influence of different bid‐ask spread models on the minimum capital requirement and determine a solution set consisting of an optimal initial asset allocation and an optimal liquidation strategy. We show that the initial asset allocation, in conjunction with the appropriate liquidation strategy, is an important tool in minimizing the capital committed to cover claims for a predetermined ruin probability. This interdependence is of importance to insurance companies, stakeholders, and regulators.

Date: 2008
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https://doi.org/10.1111/j.1539-6975.2007.00255.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:75:y:2008:i:1:p:207-230

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