Publication
Limited liability creates an incentive for insurers to increase the risk of the assets and liabilities at the expense of policyholders. We show that solvency capital requirements restrict the set of feasible investment and premium policies and can thereby improve efficiency under the risk-shifting problem. This finding becomes particularly important in light of SolvencyII, the forthcoming European risk-based solvency regime for insurers. We provide evidence for SolvencyII-related efficiency effects in a calibration study for a nonlife insurer average portfolio.
Kyriakos Papadodimas, Alexandre Mathieu Frédéric Belin