A network model of insurance company cash flow management

Abstract

Cash flow management activities of property-casualty insurance companies deal with both insurance underwriting operations and investment portfolio pursuits. For the greatest overall efficiency, these two dimensions require simultaneous consideration and coordination to effect the optimum strategy for each. The complexities involved in managing the joint cash flow are such that the judgmental methods or heuristic guidelines often employed are inadequate to investigate properly the various tradeoffs. Analytical techniques, such as various forms of general linear and nonlinear programming, have been proposed to aid in these investigations, but are of little operational value because of problem size. In other applications, network analysis has been able to overcome this type of difficulty. Hence, in this paper an application of a network model to the problem of managing the overall cash flow of a medium sized property-casualty insurance company is described. The model allows for coordination of the two dimensions, and an example situation is indicated.