Revisiting optimal investment strategies of value-maximizing insurance firms

We study capital management and investment decisions of a value-maximizing insurance firm with broad ownership base in discrete-time setting. highlight that the valuation measure used to determine value cash flows shareholders should reflect two economically sound requirements: market-consistency indifference idiosyncratic risk. provide rigorous construction this economic use it derive optimal capital-management strategies realize firm. Our objective is shed light on controversial question whether insurers invest liquidly-traded risky assets. Decomposing into net tangible value, default option franchise we find take risk or not essentially depends tradeoff between impact owner’s firm’s value. A variety numerical examples illustrate how changes regulatory financial environment can result materially different strategies.