Insolvency Risk in the Italian Non-life Insurance Companies. An Empirical Analysis Based on a Cash Flow Simulation Model

Ceccarelli, Simone

doi:10.2139/ssrn.536763

Cited by 4 publications

(3 citation statements)

References 36 publications

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“…Moreover, a safer investor, with a smaller α i or a smaller ǫ i than a riskier investor, contributes to an increase of the premium, from which all investors benefit. This behaviour has also been described by Ceccarelli (2002). Equations 7and (8) can be solved for δ i t and P t+1 : they provide a unique solution with a strictly positive premium (this will become clear for the special case considered below; however, we give a general proof of the existence and uniqueness of a solution in the Appendix 6.1).…”

Section: An Evolutionary Model With Bankruptcymentioning

confidence: 77%

Evolutionary Portfolio Selection With Liquidity Shocks

Giorgi

Enrico²

2007

SSRN Journal

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Insurance companies invest their wealth in financial markets. The wealth evolution strongly depends on the success of their investment strategies, but also on liquidity shocks which occur during unfavourable years, when indemnities to be paid to the clients exceed collected premia. An investment strategy that does not take liquidity shocks into account, exposes insurance companies to the risk of bankruptcy, when liquidity shocks and low investment payoffs jointly appear. Therefore, regulatory authorities impose solvency restrictions to ensure that insurance companies are able to face their obligations with high probability. This paper analyses the behaviour of insurance companies in an evolutionary framework. We show that an insurance company that merely satisfies regulatory constraints will eventually vanish from the market. We give a more restrictive no bankruptcy condition for the investment strategies and we characterize trading strategies that are evolutionary stable, i.e. able to drive out any mutation.

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Section: An Evolutionary Model With Bankruptcymentioning

confidence: 77%

Evolutionary Portfolio Selection With Liquidity Shocks

Giorgi

Enrico²

2007

SSRN Journal

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“…5 From the last equation, we see that the premium of the insurance contract increases with increasing conditional variance, as one would expect, and decreases when the 'average' reserve P I i¼1 a i t w i t increases. Moreover, a safer investor, who has a smaller a i t or a smaller i t than a riskier investor, contributes to an increase in the premium, from which all investors benefit (see Ceccarelli, 2002).…”

Section: Article In Pressmentioning

confidence: 99%

Evolutionary portfolio selection with liquidity shocks

Giorgi

2008

Journal of Economic Dynamics and Control

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The wealth dynamics of insurance companies strongly depends on the success of their investment strategies, but also on liquidity shocks which occur during unfavorable years, when indemnities to be paid to the clients exceed collected premia. An investment strategy that does not take liquidity shocks into account, exposes insurance companies to the risk of bankruptcy.This paper analyzes the behavior of insurance companies in an evolutionary framework. We show that an insurance company that merely satisfies regulatory constraints will eventually vanish from the market. We give a more restrictive no-bankruptcy condition on investment strategies. Moreover, we characterize trading strategies that are evolutionary stable, i.e., able to drive out any mutation. We study the existence of such strategies and the conditions under which financial and insurance markets are stable. r

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“…There is an extensive body of U.S. literature that develops and tests static and/or dynamic insolvency prediction models for property–liability and life–health insurers (Chen and Wong, 2004). The dynamic approach involves deterministic or stochastic cash flow modeling (Ceccarelli, 2003; Cummins, Grace, and Phillips, 1999). It is assumed that the insurer collects premiums for the next 1 or 2 years, after which time it goes into “run‐off.” The principal cash flows for each insurance line are then modeled for a horizon of 20+ years, adopting a set of assumptions for investment returns, loss (claims) development factors for each line, expenses, etc.…”

Section: Introductionmentioning

confidence: 99%

Financial Distress in Australian General Insurers

Sharpe¹,

Stadnik²

2007

J of Risk & Insurance

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We develop and test a statistical model to identify Australian general insurers experiencing financial distress over the 1999-2001 period. Using a logit model and two measures of financial distress we are able to predict, with reasonable confidence, the insurers more likely to be distressed. They are generally small and have low return on assets and cession ratios. Relative to holdings of liquid assets they have high levels of property and reinsurance assets, and low levels of equity holdings. They also write more overseas business, and less motor insurance and long-tailed insurance lines, relative to fire and household insurance. Copyright The Journal of Risk and Insurance, 2007.

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Insolvency Risk in the Italian Non-life Insurance Companies. An Empirical Analysis Based on a Cash Flow Simulation Model

Cited by 4 publications

References 36 publications

Evolutionary Portfolio Selection With Liquidity Shocks

Evolutionary Portfolio Selection With Liquidity Shocks

Evolutionary portfolio selection with liquidity shocks

Financial Distress in Australian General Insurers

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