TY  - BOOK
AU  - Froot,Kenneth A.
ED  - National Bureau of Economic Research.
TI  - Risk Management, Capital Budgeting and Capital Structure Policy for Insurers and Reinsurers
T2  - NBER working paper series
PY  - 2003///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - December 2003; Hardcopy version available to institutional subscribers
N2  - This paper builds on Froot and Stein (1998) in developing a framework for analyzing the risk allocation, capital budgeting, and capital structure decisions facing insurers and reinsurers. The model incorporates three key features: i) value-maximizing insurers and reinsurers face product-market as well as capital market imperfections that give rise to well-founded concerns with risk management and capital allocation; ii) some, but not all, of the risks they face can be frictionlessly hedged in the capital market; iii) the distribution of their cashflows may be asymmetric, which alters the demand for underwriting and hedging. We show that these features result in a three-factor model that determines the pricing and allocation of risk and the optimal capital structure of the firm. This approach allows us to integrate these features into: i) the pricing of risky investment, underwriting, reinsurance, and hedging; and ii) the allocation of risk across all of these opportunities, and the optimal amount of surplus capital held by the firm
UR  - https://www.nber.org/papers/w10184
UR  - http://dx.doi.org/10.3386/w10184
ER  -