Equalization Reserves for Natural Catastrophes and Shareholder Value: a Simulation Study
Details
State: Public
Version: author
Serval ID
serval:BIB_420FD3304B07
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Equalization Reserves for Natural Catastrophes and Shareholder Value: a Simulation Study
Journal
European Actuarial Journal
Publication state
Published
Issued date
07/2013
Peer-reviewed
Oui
Volume
3
Number
1
Pages
1-21
Language
english
Abstract
This paper investigates the effects on the company value for shareholders of keeping equalization reserves for catastrophic risk in an insurance company. We perform an extensive simulation study to compare the performance of the company with and without equalization reserves for several standard profitability measures. Equalization reserves turn out to be beneficial for shareholders in terms of the resulting expected Sharpe ratio and also with respect to the value of the call option on assets at some reasonably large maturity time. Moreover, the expected total discounted tax payments are not smaller when using equalization reserves. The results are robust with respect to model parameters such as interest rate, time horizon, cost of raising capital and business cycle dynamics.
Create date
04/02/2013 19:42
Last modification date
20/08/2019 14:43