IDEAS home Printed from https://ideas.repec.org/a/bla/rmgtin/v12y2009i2p213-226.html
   My bibliography  Save this article

Performance Management in Insurance Firms by Using Transfer Pricing

Author

Listed:
  • René Doff
  • Jan Bilderbeek
  • Bert Bruggink
  • Pieter Emmen

Abstract

In this article, we analyze the asset and liability management and market risk systems of insurance companies. We discuss that the current system is not goal congruent and does not satisfy necessary conditions for effective control. It follows that managers are unable to run their business effectively. We develop a transfer pricing system that allows the clear separation of underwriting and investment activities, both on the risk and return aspects. It creates the appropriate incentive schemes. We illustrate this system with an example indicating the differences in incentives between the traditional embedded value measures and the proposed funds transfer pricing system.

Suggested Citation

  • René Doff & Jan Bilderbeek & Bert Bruggink & Pieter Emmen, 2009. "Performance Management in Insurance Firms by Using Transfer Pricing," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 12(2), pages 213-226, September.
    • Handle: RePEc:bla:rmgtin:v:12:y:2009:i:2:p:213-226
    DOI: j.1540-6296.2009.01164.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1540-6296.2009.01164.x
    Download Restriction: no
    File URL: https://libkey.io/j.1540-6296.2009.01164.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Milton Harris & Artur Raviv, 2005. "Allocation of Decision-making Authority," Review of Finance, European Finance Association, vol. 9(3), pages 353-383.
    2. Allen, Franklin & Santomero, Anthony M., 2001. "What do financial intermediaries do?," Journal of Banking & Finance, Elsevier, vol. 25(2), pages 271-294, February.
    3. Edward Zaik & John Walter & Gabriela Retting & Christopher James, 1996. "Raroc At Bank Of America: From Theory To Practice," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(2), pages 83-93, June.
    4. Rubinstein, Mark, 2001. "Derivatives Performance Attribution," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(1), pages 75-92, March.
    5. Ralph C. Kimball, 1997. "Innovations in performance measurement in banking," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 23-38.
    6. Milton Harris & Artur Raviv, 2005. "Allocation of Decision-making Authority," Review of Finance, Springer, vol. 9(3), pages 353-383, September.
    7. David Babbel & Jeremy Gold & Craig Merrill, 2002. "Fair Value of Liabilities: The Financial Economics Perspective," North American Actuarial Journal, Taylor & Francis Journals, vol. 6(1), pages 12-27.
    8. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    9. Paul J M Klumpes, 2005. "Managerial Use of Discounted Cash-Flow or Accounting Performance Measures: Evidence from the U.K. Life Insurance Industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 30(1), pages 171-186, January.
    10. André P. Liebenberg & Robert E. Hoyt, 2003. "The Determinants of Enterprise Risk Management: Evidence From the Appointment of Chief Risk Officers," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 6(1), pages 37-52, February.
    11. Broadie, Mark & Cvitanic, Jaksa & Soner, H Mete, 1998. "Optimal Replication of Contingent Claims under Portfolio Constraints," The Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 59-79.
    12. David F. Babbel & Anthony M. Santomero, 1997. "Risk Management by Insurers: An Analysis of the Process," Center for Financial Institutions Working Papers 96-16, Wharton School Center for Financial Institutions, University of Pennsylvania.
    13. John Drzik, 2005. "At the Crossroads of Change: Risk and Capital Management in the Insurance Industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 30(1), pages 72-87, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mai, Nhat Chi, 2020. "The Effects Of The Base Erosion And Profit Shifting (Beps) Action 13 On Transfer Pricing Practices: A Comparative Empirical Study Of New Zealand And Vietnam," OSF Preprints gq27c, Center for Open Science.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maria-Eleni K. Agoraki & Manthos D. Delis & Panagiotis K. Staikouras, 2010. "The effect of board size and composition on bank efficiency," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 2(4), pages 357-386.
    2. Hori, Kazumi, 2008. "The role of private benefits in information acquisition," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 626-631, December.
    3. Tim Baldenius & Xiaojing Meng & Lin Qiu, 2021. "The value of board commitment," Review of Accounting Studies, Springer, vol. 26(4), pages 1587-1622, December.
    4. Dongmin Kong & Ling Zhu & Ni Qin, 2022. "Does corruption shape firm centralisation? Evidence from state‐owned enterprises in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3365-3395, September.
    5. Rantakari, Heikki, 2014. "A simple model of project selection with strategic communication and uncertain motives," Journal of Economic Behavior & Organization, Elsevier, vol. 102(C), pages 14-42.
    6. Paola Rovelli & Vincenzo Butticè, 2020. "On the organizational design of entrepreneurial ventures: the configurations of the entrepreneurial team," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(2), pages 243-269, June.
    7. Stoughton, Neal M. & Zechner, Josef, 2007. "Optimal capital allocation using RAROC(TM) and EVA(R)," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 312-342, July.
    8. Ricardo Alonso & Niko Matouschek, 2008. "Optimal Delegation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(1), pages 259-293.
    9. Ying Chen & Sidartha Gordon, 2015. "Information transmission in nested sender–receiver games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(3), pages 543-569, April.
    10. Silvia Marchesi & Laura Sabani & Axel Dreher, 2009. "Agency and Communication in IMF Conditional Lending: Theory and Empirical Evidence," CESifo Working Paper Series 2574, CESifo.
    11. Axel Dreher & Sarah Langlotz & Silvia Marchesi, 2017. "Information Transmission And Ownership Consolidation In Aid Programs," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1671-1688, October.
    12. McGee, Andrew & Yang, Huanxing, 2013. "Cheap talk with two senders and complementary information," Games and Economic Behavior, Elsevier, vol. 79(C), pages 181-191.
    13. Gourieroux, C. & Laurent, J. P. & Scaillet, O., 2000. "Sensitivity analysis of Values at Risk," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 225-245, November.
    14. Tamada, Yasunari & Tsai, Tsung-Sheng, 2009. "The Allocation of Decision-Making Authority when Principal has Reputation Concerns," MPRA Paper 20225, University Library of Munich, Germany.
    15. Silvia, Marchesi & Tania, Masi, 2019. "Allocation of implementing power: Evidence from World Bank projects," Working Papers 399, University of Milano-Bicocca, Department of Economics, revised Jan 2019.
    16. Bernardo, Antonio E. & Luo, Jiang & Wang, James J.D., 2006. "A theory of socialistic internal capital markets," Journal of Financial Economics, Elsevier, vol. 80(3), pages 485-509, June.
    17. Schmidbauer, Eric, 2019. "Budget selection when agents compete," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 255-268.
    18. Cyrus Aghamolla & Tadashi Hashimoto, 2021. "Aggressive Boards and CEO Turnover," Journal of Accounting Research, Wiley Blackwell, vol. 59(2), pages 437-486, May.
    19. Zhu, Ling & Kong, Dongmin, 2022. "Does government transparency shape firm decentralization? Evidence from a natural experiment in China," Emerging Markets Review, Elsevier, vol. 53(C).
    20. ATM Adnan & Nisar Ahmed, 2019. "The Transformation Of The Corporate Governance Model: A Literature Review," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 8(3), pages 7-47.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:rmgtin:v:12:y:2009:i:2:p:213-226. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1098-1616 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.