Risk management, capital budgeting and capital structure policy for insurers and reinsurers
By: Kenneth A. Froot
Contributors: Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 04-035; Working paper (Harvard Business School. Division of Research) -- 04-035
Publisher: Division of Research, Harvard Business School
Published: 2003
Place of publication: Boston
Language: eng
Number of pages: 44
Subjects: Risk management; Insurance; Capital
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.
Notes: "November 2003"--Added t.p.

Includes bibliographical references.