Abstract
In this paper we formulate the asset liability management problem for a casualty insurer. We describe a multistage stochastic programming portfolio selection model, within which the casualty insurer maximizes a concave utility function, indicating that the company perceives itself as risk averse. The optimal solution is a portfolio of financial assets earning a return that, including premium income from written policies, will guarantee compliance with the legal statutes, in all but a few extreme states of nature. In this context we examine properties of optimal portfolios, in the presence of different legal restrictions, to decide whether or not the constrained portfolios yield a higher level of utility to the policyholders than the unregulated portfolios. Depending on which utility functions are assumed to represent policyholders preferences, we find that for some levels of risk aversion the constrained portfolios are preferred to the unregulated portfolios. We remark, however, that this does not automatically imply that regulations are desirable.
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Gaivoronski, A.A., Høyland, K., de Lange, P.E. (2001). Statutory Regulation of Casualty Insurance Companies: An Example from Norway with Stochastic Programming Analysis. In: Uryasev, S., Pardalos, P.M. (eds) Stochastic Optimization: Algorithms and Applications. Applied Optimization, vol 54. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-6594-6_3
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DOI: https://doi.org/10.1007/978-1-4757-6594-6_3
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