Insurance Market Effects of Risk Management Metrics
نویسندگان
چکیده
Economic efficiency is improved in the presence of an implemented risk management program of the insurer. Risk management requirements are imposed by regulators to reduce the insurers’ insolvency risk, as well as to improve the insurance market stability. We extend the classical analysis on optimal insurance design to the case when the insurer implements regulatory requirements (Value-at-Risk). Optimal designs for both the insurer and the insured are derived explicitly. Our analysis reveals that insured are better protected in the event of greater loss irrespective of the optimal design from either the insured or the insurer perspective. Therefore the overall insurance market becomes more stable.
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