Download this Paper Open PDF in Browser

Optimal Capital Structure for Insurance Companies

38 Pages Posted: 24 Dec 2010  

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

Date Written: November 9, 2010

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.

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

JEL Classification: D81, G10, G20

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: https://ssrn.com/abstract=1730231 or http://dx.doi.org/10.2139/ssrn.1730231

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 )

Plantage Muidergracht 12
Amsterdam, 1018 TV
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

Paper statistics

Downloads
484
Rank
47,869
Abstract Views
1,791