Hedging the Tax Liability of a Property-Liability Insurance Company

Richard Derrig and Krzysztof Ostaszewski

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: The income tax burden placed upon a property-liability insurance company creates a variable liability with profound effects on the functioning of the enterprise. It directly affects product pricing and asset investment policies and, therefore, the potential profitability of the insurer. Recent research works have identified fuzzy sets theory as a potentially useful modeling paradigm for insurance uncertainty—in claim cost forecasting, underwriting, rate classification, and premium determination. We view the insurance liabilities, properly priced, as a hedge against the short position in the government tax option. Uncertainty in the critical parameters of underwriting and investment are modeled as fuzzy numbers, leading to a mixed model of uncertainty in the tax rate, rate of return and the liability hedge.

This paper was presented at the Financial Institutions Center's May 1996 conference on "

Date: 1996-05
Note: This paper is only available in hard copy
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:wop:pennin:96-30

Access Statistics for this paper

More papers in Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().