Evaluating the Efficiency of Capital Enhancement and Investment Constraints in Life Insurance Supervision

Chang Shih-Chieh Bill (), Hsuan Wei (), Lee Yen-Kuan () and Tzeng Yu-Ying ()
Additional contact information
Chang Shih-Chieh Bill: Department of Risk Management and Insurance, National Chengchi University, Taipei, Taiwan
Hsuan Wei: Department of Risk Management and Insurance, Tamkang University, New Taipei, Taiwan
Lee Yen-Kuan: Department of Risk Management and Insurance, National Chengchi University, Taipei, Taiwan
Tzeng Yu-Ying: Department of Risk Management and Insurance, National Chengchi University, Taipei, Taiwan

Asia-Pacific Journal of Risk and Insurance, 2024, vol. 18, issue 2, 115-141

Abstract: This study addresses the critical public concern of effectively mitigating solvency risks in insurance companies through supervisory intervention. Building upon existing research, we extend our analysis to incorporate the effects of foreign investment and examine the impact of varying degrees of risk aversion among insurers. Furthermore, we investigate the optimal expected terminal utility in relation to initial insurance company premiums, integrating interest and exchange rates into our analytical framework. Additionally, we evaluate the impact of regulatory interventions, specifically capital injection schemes and risk-constrained asset allocation, on insurers’ default risk and certainty equivalent wealth using a utility-based approach. Our findings indicate that: (1) when policyholders exhibit higher degrees of risk aversion, a reduced propensity to allocate funds to riskier assets, such as stock index funds and foreign assets, is observed; (2) when exchange rates offer higher returns, an increased allocation to foreign assets is advisable; (3) conversely, when exchange rate returns exhibit greater uncertainty, a reduction in foreign asset allocation is recommended; (4) in scenarios where foreign risk-free rates yield higher returns, an increased allocation to foreign assets is suggested; and (5) under conditions of capital minimization, the influence of exchange rates and foreign interest rates on optimization becomes less discernible.

Keywords: regulatory intervention; asset allocation; default risk; certainty equivalent; risk aversion (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/apjri-2023-0052 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

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:bpj:apjrin:v:18:y:2024:i:2:p:115-141:n:1001

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/apjri/html

DOI: 10.1515/apjri-2023-0052

Access Statistics for this article

Asia-Pacific Journal of Risk and Insurance is currently edited by Michael R. Powers

More articles in Asia-Pacific Journal of Risk and Insurance from De Gruyter
Bibliographic data for series maintained by Peter Golla ().