Optimal Capital Structure for Life Insurance Companies Offering Surplus Participation

Felix Fie{\ss}inger and Mitja Stadje

Papers from arXiv.org

Abstract: We adapt Leland's dynamic capital structure model to the context of an insurance company selling participating life insurance contracts explaining the existence of life insurance contracts which provide both a guaranteed payment and surplus participation to the policyholders. Our derivation of the optimal participation rate reveals its pronounced sensitivity to the contract duration and the associated tax rate. Moreover, the asset substitution effect, which describes the tendency of equity holders to increase the riskiness of a company's investment decisions, decreases when adding surplus participation.

Date: 2025-04, Revised 2025-04
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2504.12851 Latest version (application/pdf)

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:arx:papers:2504.12851

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().