Capital Allocation for Insurance Companies: Issues and Methods
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Capital Allocation for Insurance Companies: Issues and Methods. / Nielsen, Jens Perch; Poulsen, Rolf; Mumford, Paul.
In: Belgian Actuarial Bulletin, Vol. 9, 2010, p. 1-7.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Capital Allocation for Insurance Companies: Issues and Methods
AU - Nielsen, Jens Perch
AU - Poulsen, Rolf
AU - Mumford, Paul
PY - 2010
Y1 - 2010
N2 - We address some key issues related to risk and capital allocation in insurance companies. We argue that the Froot-Stein approach to risk is relevant to a number of important problems in the daily management of an insurance portfolio and that – taken to its consequence – this approach will lead to a close cooperation between actuarial and financial departments with a particular view to the ability of the Actuary to separate financial risk from insurance risk and the ability of the finance department to hedge the right amount of their complicated financial risk at a good price. We also introduce a new way of combining capital allocation and pricing of insurance policies. Through a performance measure of return on capital, we suggest a way of evaluating the price of capital for a single policy, that this money is held as a reserve and that this reserve should run off in such a way that old underwriting does not harm the performance of any given business line.
AB - We address some key issues related to risk and capital allocation in insurance companies. We argue that the Froot-Stein approach to risk is relevant to a number of important problems in the daily management of an insurance portfolio and that – taken to its consequence – this approach will lead to a close cooperation between actuarial and financial departments with a particular view to the ability of the Actuary to separate financial risk from insurance risk and the ability of the finance department to hedge the right amount of their complicated financial risk at a good price. We also introduce a new way of combining capital allocation and pricing of insurance policies. Through a performance measure of return on capital, we suggest a way of evaluating the price of capital for a single policy, that this money is held as a reserve and that this reserve should run off in such a way that old underwriting does not harm the performance of any given business line.
M3 - Journal article
VL - 9
SP - 1
EP - 7
JO - Belgian Actuarial Bulletin
JF - Belgian Actuarial Bulletin
SN - 1784-5742
ER -
ID: 35454353