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Title:Who benefits from building insurance groups? A welfare analysis of optimal group capital management PDF Logo
Authors:Schlütter, Sebastian
Gründl, Helmut
Issue Date:2011
Series/Report no.:ICIR Working Paper Series 08/11
Abstract:This paper compares the shareholder-value-maximizing capital structure and pricing policy of insurance groups against that of stand-alone insurers. Groups can utilise intra-group risk diversification by means of capital and risk transfer instruments. We show that using these instruments enables the group to offer insurance with less default risk and at lower premiums than is optimal for standalone insurers. We also take into account that shareholders of groups could find it more difficult to prevent inefficient overinvestment or cross-subsidisation, which we model by higher dead-weight costs of carrying capital. The tradeoff between risk diversification on the one hand and higher dead-weight costs on the other can result in group building being beneficial for shareholders but detrimental for policyholders.
Subjects:Insurance groups
insurer default risk
insurance pricing
consumer protection
Document Type:Working Paper
Appears in Collections:ICIR Working Paper Series, International Center for Insurance Regulation, Universität Frankfurt

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