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The influence of corporate taxes on pricing and capital structure in property-liability insurance

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  • Gatzert, Nadine
  • Schmeiser, Hato

Abstract

A change in the corporate tax level can have a significant impact on rate making and capital structure for insurance companies. The purpose of this paper is to study this effect on competitive equity-premium combinations for different asset and liability models while retaining a fixed safety level. This is a crucial consideration as a change in the tax rate leads, in general, to a different risk of insolvency. Hence, fixing the safety level serves to isolate the effect of taxes without shifting the insurer's risk situation whenever taxes are varied. The model framework includes stochastic assets as well as stochastic claims costs. We further compare the results for liability models with and without a jump component. Insurance rate making is conducted using option pricing theory.

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  • Gatzert, Nadine & Schmeiser, Hato, 2008. "The influence of corporate taxes on pricing and capital structure in property-liability insurance," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 50-58, February.
    • Handle: RePEc:eee:insuma:v:42:y:2008:i:1:p:50-58
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    Cited by:

    1. Sebastian Schlütter, 2019. "Optimal taxation in non-life insurance markets," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 44(1), pages 1-26, March.
    2. Sebastian Schlütter, 2019. "Optimal taxation in non-life insurance markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 44(1), pages 1-26, March.
    3. Berdin, Elia & Pancaro, Cosimo & Kok Sørensen, Christoffer, 2016. "A stochastic forward-looking model to assess the profitability and solvency of European insurers," ICIR Working Paper Series 21/16, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    4. Gatzert, Nadine & Schmeiser, Hato, 2008. "Combining fair pricing and capital requirements for non-life insurance companies," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2589-2596, December.
    5. Braun, Alexander & Schmeiser, Hato & Rymaszewski, Przemysław, 2015. "Stock vs. mutual insurers: Who should and who does charge more?," European Journal of Operational Research, Elsevier, vol. 242(3), pages 875-889.
    6. Schlütter, Sebastian & Gründl, Helmut, 2011. "Who benefits from building insurance groups? A welfare analysis of optimal group capital management," ICIR Working Paper Series 08/11, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    7. Hato Schmeiser & Joël Wagner, 2013. "The Impact of Introducing Insurance Guaranty Schemes on Pricing and Capital Structure," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(2), pages 273-308, June.
    8. Greg Niehaus, 2023. "Personal taxes, cost of insurer equity capital, and the case of offshore hedge fund reinsurers," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(2), pages 249-281, June.

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