Risk- and value-based management for non-life insurers under solvency constraints

Johanna Eckert and Nadine Gatzert

European Journal of Operational Research, 2018, vol. 266, issue 2, 761-774

Abstract: The aim of this paper is to study optimal risk- and value-based management decisions regarding a non-life insurer's investment strategy by maximizing shareholder value based on preference functions, while simultaneously controlling for the ruin probability. We thereby extend previous work by deriving analytical solutions and by explicitly accounting for the policyholders’ willingness to pay depending on their risk sensitivity based on the insurer's reported solvency status, which will be of great relevance under Solvency II. We further investigate the impact of the risk-free interest rate, (non-linear) dependencies between assets and liabilities, distributional assumptions as well as reinsurance. One main finding is that the consideration of default-risk-driven premiums is vital for optimal management decisions, since, e.g., the target ruin probability implying a higher shareholder value differs for various risk sensitivities of the policyholders. Furthermore, in the present setting, proportional reinsurance increases shareholder value only for non-risk sensitive policyholders.

Keywords: Non-life insurance; Solvency II; Shareholder value optimization; Default-risk-driven premium; Copulas (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221717309438
Full text for ScienceDirect subscribers only

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:eee:ejores:v:266:y:2018:i:2:p:761-774

DOI: 10.1016/j.ejor.2017.10.030

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().