Be as safe as possible: A behavioral approach to the optimal corporate risk strategy of insurers
AbstractThis paper empirically studies the impact of consumer reaction to default risk on an insurer's optimal solvency level. Using experimentally obtained data, we derive a price-default risk-demand-curve that serves as an input variable for the insurer's risk strategy. We show that an insurer should choose to be default-free rather than having even a very small default probability. This risk strategy is also optimal when assuming substantial transaction costs for risk management activities undertaken to achieve the maximum solvency level. --
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Bibliographic InfoPaper provided by International Center for Insurance Regulation (ICIR), Goethe University Frankfurt in its series ICIR Working Paper Series with number 06/11.
Date of creation: 2012
Date of revision:
Behavioral Insurance; Risk Management of Insurance Companies;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-30 (All new papers)
- NEP-IAS-2012-09-30 (Insurance Economics)
- NEP-RMG-2012-09-30 (Risk Management)
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