Skip to main content
Article thumbnail
Location of Repository

Capital allocation for insurance companies – what good is it?

By Helmut Gründl and Hato Schmeiser

Abstract

In their 2001 Journal of Risk and Insurance article, Stewart C. Myers and James A. Read, Jr., propose to use a specific capital allocation method for pricing insurance contracts. We show that in their model framework no capital allocation to lines of business is needed for pricing insurance contracts. In the case of having to cover frictional costs, the suggested allocation method may even lead to inappropriate insurance prices. Beside the purpose of pricing insurance contracts, capital allocation methods proposed in the literature and used in insurance practice are typically intended to help deriving capital budgeting decisions in insurance companies, such as expanding or contracting lines of business. We also show that net present value analyses provide better capital budgeting decisions than capital allocation in general

Year: 2005
OAI identifier: oai:CiteSeerX.psu:10.1.1.134.1734
Provided by: CiteSeerX
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://citeseerx.ist.psu.edu/v... (external link)
  • http://www.finance.unisg.ch/or... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.