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On the feasibility of insurers' investment policies


Zweifel, Peter; Auckenthaler, Christoph (2008). On the feasibility of insurers' investment policies. Journal of Risk and Insurance, 75(1):193-206.

Abstract

This article calls attention to a difficulty with insurers' investment policies that seems to have been overlooked so far. There is the distinct possibility that insurers cannot satisfy the demands of different stakeholders in terms of expected returns and volatility. While using the capital asset pricing model as the benchmark, this article distinguishes two groups of stakeholders that impose additional constraints. One is “income security” in the interest of current beneficiaries and older workers; the other is “predictability of contributions” in the interest of contributing younger workers and sponsoring employers. It defines the conditions for which the combination of these constraints results in a lack of feasibility of investment policy. Minimum deviation from the capital market line is proposed as the performance benchmark in these situations.

Abstract

This article calls attention to a difficulty with insurers' investment policies that seems to have been overlooked so far. There is the distinct possibility that insurers cannot satisfy the demands of different stakeholders in terms of expected returns and volatility. While using the capital asset pricing model as the benchmark, this article distinguishes two groups of stakeholders that impose additional constraints. One is “income security” in the interest of current beneficiaries and older workers; the other is “predictability of contributions” in the interest of contributing younger workers and sponsoring employers. It defines the conditions for which the combination of these constraints results in a lack of feasibility of investment policy. Minimum deviation from the capital market line is proposed as the performance benchmark in these situations.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:March 2008
Deposited On:01 Dec 2008 13:58
Last Modified:06 Dec 2017 15:25
Publisher:Wiley-Blackwell
ISSN:0022-4367
Additional Information:Presented at the 27th SUERF Colloquium, Munich, 12-14 June 2008. The definitive version is available at www.blackwell-synergy.com
Publisher DOI:https://doi.org/10.1111/j.1539-6975.2007.00254.x

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