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Does WTC Matter for the Investment Policy of P/C Insurance Companies?

Author

Listed:
  • Paul M Achleitner

    (Allianz, AG)

  • Jorg H Biebel

    (Allianz, AG)

  • Daniel Wichels

    (Allianz, AG)

Abstract

The attack on the World Trade Center (WTC) had a serious double impact on insurance companies, revealing a significant correlation between the asset and liability sides of their balance sheets. Insurance companies that previously considered themselves well capitalized, suddenly felt vulnerable to simultaneous shocks to their risk-absorbing capital. The unprecedented simultaneous shock challenges the previous investment assumption of P/C insurers that there is no major relation between underwriting and investment risks. The direct and indirect impact of WTC on the investment policy is threefold. First, the stronger correlation between underwriting and investment risks implies a lower overall investment risk absorption capacity. Second, an active or index-based investment attitude should be augmented by a more elaborated ALM-based counterparty risk controlling. Third, the general “risk appetite” of P/C insurers must be reviewed. All in all, a deeper knowledge and better understanding of the underwritten risk structure is necessary to derive an optimal investment policy. The Geneva Papers on Risk and Insurance (2002) 27, 275–282. doi:10.1111/1468-0440.00169

Suggested Citation

  • Paul M Achleitner & Jorg H Biebel & Daniel Wichels, 2002. "Does WTC Matter for the Investment Policy of P/C Insurance Companies?," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 27(2), pages 275-282, April.
    • Handle: RePEc:pal:gpprii:v:27:y:2002:i:2:p:275-282
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    Cited by:

    1. Hong Zou & Min-Ming Wen & Charles Yang & Mulong Wang, 2012. "Underwriting and investment risks in the property-liability insurance industry: evidence prior to the 9–11 event," Review of Quantitative Finance and Accounting, Springer, vol. 38(1), pages 25-46, January.
    2. Christensen, Bent Jesper & Parra-Alvarez, Juan Carlos & Serrano, Rafael, 2021. "Optimal control of investment, premium and deductible for a non-life insurance company," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 384-405.
    3. Martin Eling & Denis Toplek, 2009. "Modeling and Management of Nonlinear Dependencies–Copulas in Dynamic Financial Analysis," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(3), pages 651-681, September.
    4. Irinela – Constantina Badea, 2015. "Assets Admitted To Cover Gross Technical Reserves Case Study: Insurance – Reinsurance Company Astra Sa," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 309-315, December.

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