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Dynamic investment-driven insurance pricing and optimal regulation

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  • Chen, Bingzheng
  • Liang, Zongxia
  • Pang, Shunzhi

Abstract

This paper analyzes the competitive equilibrium of insurance market in a dynamic setting, focusing on the interaction between insurers' underwriting and investment strategies. Three possible equilibrium outcomes are identified: a positive insurance market, a zero insurance market, and market failure. Our findings reveal why insurers may rationally accept underwriting losses by setting a negative safety loading while relying on investment profits, particularly when there is a negative correlation between insurance gains and financial returns. Such losses can still occur even when the insurance market is monopolistic. Additionally, we explore the impact of regulatory frictions, showing that while imposing a cost on investment can enhance social welfare under certain conditions, it may not always be necessary.

Suggested Citation

  • Chen, Bingzheng & Liang, Zongxia & Pang, Shunzhi, 2025. "Dynamic investment-driven insurance pricing and optimal regulation," Insurance: Mathematics and Economics, Elsevier, vol. 125(C).
    • Handle: RePEc:eee:insuma:v:125:y:2025:i:c:s0167668725001076
    DOI: 10.1016/j.insmatheco.2025.103160
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    References listed on IDEAS

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    Cited by:

    1. Shunzhi Pang, 2026. "Robust Investment-Driven Insurance Pricing under Correlation Ambiguity," Papers 2603.18969, arXiv.org.
    2. Bingzheng Chen & Jan Dhaene & Chun Liu & Shunzhi Pang, 2026. "Robust Investment-Driven Insurance Pricing and Liquidity Management," Papers 2603.18962, arXiv.org.

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