Abstract

http://ssrn.com/abstract=1730231
 


 



Optimal Capital Structure for Insurance Companies


Roger J. A. Laeven


University of Amsterdam - Amsterdam School of Economics

Enrico C. Perotti


University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR); Tinbergen Institute

November 9, 2010

Netspar Discussion Paper No. 11/2010-073

Abstract:     
This paper analyzes the capital structure decision that insurance companies face. A structural microeconomic model is constructed and solved by means of dynamic optimization. The model allows for a careful analysis of various aspects pertaining to the basic economic trade-off between increasing the level of surplus capital on the one hand, incurring high costs in imperfect capital markets, and decreasing the surplus level on the other, eroding the quality and value of insurance protection offered.

Number of Pages in PDF File: 38

Keywords: Risk Management, Insolvency Risk, Surplus Capital, Insurance Premium, External Financing, Capital Market Imperfections, Charter Value

JEL Classification: D81, G10, G20

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Date posted: December 24, 2010  

Suggested Citation

Laeven, Roger J. A. and Perotti, Enrico C., Optimal Capital Structure for Insurance Companies (November 9, 2010). Netspar Discussion Paper No. 11/2010-073. Available at SSRN: http://ssrn.com/abstract=1730231 or http://dx.doi.org/10.2139/ssrn.1730231

Contact Information

Roger Jean Auguste Laeven (Contact Author)
University of Amsterdam - Amsterdam School of Economics ( email )
Valckenierstraat 65-67
Amsterdam, 1018 XE
Netherlands
+31 20 525 4252 (Phone)
HOME PAGE: http://www.rogerlaeven.com
Enrico C. Perotti
University of Amsterdam - Finance Group ( email )
Roetersstraat 18
Amsterdam, 1018 WB
Netherlands
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)
HOME PAGE: http://www.fee.uva.nl/fm/people/pero.htm
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Tinbergen Institute ( email )
Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands
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