Optimal Price Setting and Insurer Capital Management in a Multiple Line Context

Mao Hong (), Carson James M. () and Ostaszewski Krzysztof M. ()
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Mao Hong: Shanghai Second Polytechnic University, Shanghai, China
Carson James M.: Shanghai Second Polytechnic University, Shanghai, China
Ostaszewski Krzysztof M.: Professor of Mathematics and Actuarial Program Director, Illinois State University, Normal, USA

Asia-Pacific Journal of Risk and Insurance, 2018, vol. 12, issue 1, 22

Abstract: We extend Kliger and Levikson’s approach for pricing insurance contracts by considering the influence of insurer capital on the price of insurance contracts. In the context of a multi-line insurer, we analyze how to arrive at the optimal price, number of policies, and capital level of the insurer. Our results differ from prior literature on capital allocation even in incomplete markets with friction in that we show that even with multiple lines of business, the insurer still only needs to hold a single amount of overall capital. Finally, our results show that the relation between the number of policies and price is important in the pricing and capital decision.

Keywords: optimal pricing; capital management; multiple lines of products; insurance demand; pricing of multi-put option (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/apjri-2017-0018

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