Value Creation and Solvency: A Simple Approach to Deriving a Non-Life Insurer’s Optimal Growth Strategy

Matthias Schmautz ()
Additional contact information
Matthias Schmautz: Risk Management & Auditing, International Insurance Group, Vienna 1010, Austria.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2015, vol. 40, issue 4, 719 pages

Abstract: Strategic planning in non-life insurance companies must consider differing demands from the company’s various stakeholders. While investors and shareholders require growth in equity market value, rating agencies, costumers and the authorities focus on the company’s solvency, that is, the amount of capital covering the business risks. In that regard, growth in premium income and business profitability are critical, but opposing drivers for operative management. In this article, we model profitability in the insurance business in dependence on premium growth and analyse the impact of the underlying growth strategy on shareholder value and solvency for a non-life insurance company. In a multi-period framework, we find that an optimal growth strategy, maximising net present value and fulfilling a solvency constraint can be derived in dependence on the initial insurance portfolio mix of new and renewal business. The results of the analysis further demonstrate that higher growth rates can lead to lower equity values and vice versa, and that the solvency constraint can prohibit a shareholder-value-maximising strategy. Therefore, the approach is useful in supporting strategic decision-taking and value-based management in non-life insurance companies.

Date: 2015
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.palgrave-journals.com/gpp/journal/v40/n4/pdf/gpp201520a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/gpp/journal/v40/n4/full/gpp201520a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

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:pal:gpprii:v:40:y:2015:i:4:p:701-719

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41288/PS2

Access Statistics for this article

The Geneva Papers on Risk and Insurance - Issues and Practice is currently edited by Christophe Courbage

More articles in The Geneva Papers on Risk and Insurance - Issues and Practice from Palgrave Macmillan, The Geneva Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().