Risk and the capital of insurance companies
Insurance companies, like other financial institutions, have been evolving from specialized businesses to enterprises offering a variety of financial services. Rising interest rates impelled this evolution during much of the past three decades as most insurers tried to remain competitive. However, as insurers' profit margins subsided and they attracted new business, their assets generally grew more rapidly than their capital. To maintain the safety and soundness of insurance companies, regulators increasingly are adopting risk-based capital requirements instead of rules that limit insurers' investments and contracts, but these standards measure neither the protection for policyholders embedded in insurers' portfolios nor the rate at which this protection might change with economic conditions.> The author suggests that risk managers and regulators might use the models behind value-at-risk calculations to isolate those economic conditions that threaten the solvency of insurance companies. A conservative policy might require that insurers adopt financial strategies that limit their maximum losses for all "feasible" conditions, a kind of minimax strategy. This version of risk-based capital requirements might reveal best the risks that insurance companies are bearing and, when necessary, might tie their need for capital more directly to these risks, rather than to their commitments to individual assets and liabilities.
Volume (Year): (1996)
Issue (Month): Jul ()
|Contact details of provider:|| Postal: |
Web page: http://www.bos.frb.org/
More information through EDIRC
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:fip:fedbne:y:1996:i:jul:p:27-42. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.