Portfolio Balancing Corporate Assets and Liabilities with Special Application to Insurance Management

Clement G. Krouse

Journal of Financial and Quantitative Analysis, 1970, vol. 5, issue 1, 77-104

Abstract: Economic analysts following the mean-variance maxim have concentrated upon the problem of portfolios as financial assets with little or no effort being directed to the inclusion of productive liabilities. Accordingly, the usual portfolio analysis assumes the absolute level of funds available for investment as fixed and concerns itself only with the distribution of that given amount over candidate opportunities. In a wide variety of applications, neither part of this restriction is either essential or desirable. The management of insurance companies is a particularly important area that could benefit from an extension of portfolio techniques to accommodate liabilities as a variable factor. Subsequently, alternative levels of funding, through both underwriting and long-term debt, could be investigated for their attendant expected return and risk contributions to the corporation's overall financial posture.

Date: 1970
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