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Optimal Price Setting and Insurer Capital Management in a Multiple Line Context

Author

Listed:
  • Mao Hong

    (Shanghai Second Polytechnic University, Shanghai, China)

  • Carson James M.

    (Shanghai Second Polytechnic University, Shanghai, China)

  • Ostaszewski Krzysztof M.

    (Professor of Mathematics and Actuarial Program Director, Illinois State University, Normal, USA)

Abstract
We extend Kliger and Levikson’s approach for pricing insurance contracts by considering the influence of insurer capital on the price of insurance contracts. In the context of a multi-line insurer, we analyze how to arrive at the optimal price, number of policies, and capital level of the insurer. Our results differ from prior literature on capital allocation even in incomplete markets with friction in that we show that even with multiple lines of business, the insurer still only needs to hold a single amount of overall capital. Finally, our results show that the relation between the number of policies and price is important in the pricing and capital decision.

Suggested Citation

  • Mao Hong & Carson James M. & Ostaszewski Krzysztof M., 2018. "Optimal Price Setting and Insurer Capital Management in a Multiple Line Context," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 12(1), pages 1-22, January.
    • Handle: RePEc:bpj:apjrin:v:12:y:2018:i:1:p:22:n:5
    DOI: 10.1515/apjri-2017-0018
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    References listed on IDEAS

    as
    1. Gatzert, Nadine & Schmeiser, Hato, 2008. "Combining fair pricing and capital requirements for non-life insurance companies," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2589-2596, December.
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    6. Rustam Ibragimov & Dwight Jaffee & Johan Walden, 2010. "Pricing and Capital Allocation for Multiline Insurance Firms," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(3), pages 551-578, September.
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    Full references (including those not matched with items on IDEAS)

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