How an aggressively expanding insurance company becomes insolvent

Vsevolod K. Malinovskii

Scandinavian Actuarial Journal, 2016, vol. 2016, issue 8, 673-691

Abstract: This paper aims to model a rational firm expanding on a regulated competitive insurance market. While the market is profitable, an aggressive price cut makes the firm’s market shares and revenue climb due to immigration of insureds. But the revenue’s growth may be slower than the growth in reserves needed to maintain the annual probabilities of ruin equal to a legally predetermined value. It will result in a progressive run-out of the funds allocated for the company’s strategic growth and is fraught with inability to meet the legal solvency requirements.

Date: 2016
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DOI: 10.1080/03461238.2014.996248

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