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Opportunity Cost in Insurance

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  • Jan Maelger

Abstract

We develop a formalism for insurance profit optimisation for the in-force business constraint by regulatory and risk policy related requirements. This approach is applicable to Life, P&C and Reinsurance businesses and applies in all regulatory frameworks with a solvency requirement defined in the form of a solvency ratio, notably Solvency II and the Swiss Solvency Test. We identify the optimal asset allocation for profit maximisation within a pre-defined risk appetite and deduce the annual opportunity cost faced by the insurance company.

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  • Jan Maelger, 2025. "Opportunity Cost in Insurance," Papers 2511.13959, arXiv.org.
    • Handle: RePEc:arx:papers:2511.13959
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    References listed on IDEAS

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    1. Alexander Braun & Hato Schmeiser & Florian Schreiber, 2017. "Portfolio Optimization Under Solvency II: Implicit Constraints Imposed by the Market Risk Standard Formula," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(1), pages 177-207, March.
    2. Dominique Henriet & Nataliya Klimenko & Jean-Charles Rochet, 2016. "The Dynamics of Insurance Prices," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 41(1), pages 2-18, March.
    3. Beavis,Brian & Dobbs,Ian, 1990. "Optimisation and Stability Theory for Economic Analysis," Cambridge Books, Cambridge University Press, number 9780521336055, January.
    4. Abbas, Amira & Ambainis, Andris & Augustino, Brandon & Baertschi, Andreas & Buhrman, Harry & Coffrin, Carleton & Cortiana, Giorgio & Dunjko, Vedran & Egger, Daniel J. & Elmegreen, Bruce G. & Franco, N, 2024. "Challenges and opportunities in quantum optimization," Other publications TiSEM eb4b8a22-9322-4251-8802-9, Tilburg University, School of Economics and Management.
    5. William Karush, 2014. "Minima of Functions of Several Variables with Inequalities as Side Conditions," Springer Books, in: Giorgio Giorgi & Tinne Hoff Kjeldsen (ed.), Traces and Emergence of Nonlinear Programming, edition 127, pages 217-245, Springer.
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