Risk management, capital budgeting and capital structure policy for insurers and reinsurers
By: Kenneth A. Froot.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10184; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10184.
Publisher: National Bureau of Economic Research
Published: 2003
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Insurance.; Reinsurance.; Risk management.
Description: "This paper builds on Froot and Stein (1998) in developing a framework for analyzing the risk allocation, capital budgeting, and capital structure decisions facing insurers and reinsurers.  The model incorporates three key features: i. value-maximizing insurers and reinsurers face product-market as well as capital market imperfections that give rise to well-founded concerns with risk management and capital allocation; ii. some, but not all, of the risks they face can be frictionlessly hedged in the capital market; iii. the distribution of their cashflows may be asymmetric, which alters the demand for underwriting and hedging.  We show that these features result in a three factor model that determines the pricing and allocation of risk and the optimal capital structure of the firm.  This approach allows us to integrate these features into: i) the pricing of risky investment, underwriting, reinsurance, and hedging; and ii) the allocation of risk across all of these opportunities, and the optimal amount of surplus capital held by the firm"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/27/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.