Investment portfolio behavior of non-life insurers: A utility analysis |
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Authors: | Eric P Briys |
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Institution: | Department of Finance, Centre of Education and Research Applied to Management, Sophia Antipolis, B.P. 20, 06561 Valbonne, France |
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Abstract: | Non-life insurers often claim that they are lead to reach out for extremely risky assets in the composition of their investment portfolio when their underwriting results deteriorate. In this paper we develop a model which attempts to explain the real behavior of investment portfolios of non-life insurance companies. The model is extended to include several variables over which the analysis is completed, namely the underwriting result, the premiums, the funds generating coefficient. The model is then subjected to a comparative statics analysis in order to examine the behavior of the portfolio composition in response to changes in the above mentioned variables. We show that the arguments developed by non-life insurers are at least questionable and critically dependent upon the increase and/or decrease of risk aversion measures. |
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Keywords: | Utility Underwriting result Investment income Funds generating coefficient Absolute relative partial relative risk aversion |
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