Optimal Investment and Premium Policies Under Risk Shifting and Solvency Regulation

28 Pages Posted: 14 May 2015

See all articles by Damir Filipović

Damir Filipović

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Robert Kremslehner

Vienna University of Economics and Business - Department of Accounting and Finance

Alexander Muermann

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

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Date Written: June 2015

Abstract

Limited liability creates an incentive for insurers to increase the risk of the assets and liabilities at the expense of policyholders. We show that solvency capital requirements restrict the set of feasible investment and premium policies and can thereby improve efficiency under the risk‐shifting problem. This finding becomes particularly important in light of Solvency II, the forthcoming European risk‐based solvency regime for insurers. We provide evidence for Solvency II–related efficiency effects in a calibration study for a nonlife insurer average portfolio.

Suggested Citation

Filipovic, Damir and Kremslehner, Robert and Muermann, Alexander, Optimal Investment and Premium Policies Under Risk Shifting and Solvency Regulation (June 2015). Journal of Risk and Insurance, Vol. 82, Issue 2, pp. 261-288, 2015. Available at SSRN: https://ssrn.com/abstract=2605690 or http://dx.doi.org/10.1111/jori.12021

Damir Filipovic (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Odyssea
Station 5
Lausanne, 1015
Switzerland

HOME PAGE: http://people.epfl.ch/damir.filipovic

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Robert Kremslehner

Vienna University of Economics and Business - Department of Accounting and Finance ( email )

Nordbergstraße 15, Bauteil B, 6. Stock
Wien 1090
Austria
+43 1 31336 4692 (Phone)
+43 1 31336 90 4692 (Fax)

Alexander Muermann

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria
+43 1 31336 4948 (Phone)
+43 1 31336 90 4948 (Fax)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria

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