Optimal Growth for P&C Insurance Companies

By Luyang Fu

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Abstract

It is generally well established that new business produces higher loss and expense ratios and lower retention ratios than renewal business. Ironically, to add more new business, an insurer needs higher profitability in order to generate the additional capital needed to support its exposure growth. Irrational growth is one of the op reasons for the insolvencies of property and casualty insurance companies. This study presents a method to balance the opposing forces of growth and profitability. The proposed method is straightforward and can be effectively employed by property and casualty insurers in their strategic planning process.

Keywords: Aging phenomenon, constrained maximum growth, optimal growth, combined ratio, premium-to-surplus ratio, enterprise risk management.

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Citation

Fu, Luyang, "Optimal Growth for P&C Insurance Companies," Variance 6:1, 2012, pp. 102-121.

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Mission Statement

Variance (ISSN 1940-6452) is a peer-reviewed journal published by the Casualty Actuarial Society to disseminate work of interest to casualty actuaries worldwide. The focus of Variance is original practical and theoretical research in casualty actuarial science. Significant survey or similar articles are also considered for publication. Membership in the Casualty Actuarial Society is not a prerequisite for submitting papers to the journal and submissions by non-CAS members is encouraged.