Risk pooling and solvency regulation: A policyholder's perspective
Markus Huggenberger and
Journal of Risk & Insurance, 2022, vol. 89, issue 4, 907-950
We investigate the benefits of risk pooling for the policyholders of stock insurance companies under different solvency standards. Using second‐degree stochastic dominance, we document that the utility of risk‐averse policyholders is increasing in the pool size if the equity capital is proportional to the premiums written. To the contrary, an increase in the pool size can reduce the policyholders' utility if the equity capital is determined using the Value‐at‐Risk (VaR). We show that pooling with a larger number of risks is also beneficial for all risk‐averse policyholders under a VaR‐based regulation if the pool satisfies an excess tail risk restriction. Our analysis provides new insights for the design of solvency standards and reveals a potential disadvantage of risk‐based capital requirements for policyholders.
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:89:y:2022:i:4:p:907-950
Ordering information: This journal article can be ordered from
Access Statistics for this article
Journal of Risk & Insurance is currently edited by Joan T. Schmit
More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().