nep-ias New Economics Papers
on Insurance Economics
Issue of 2010‒09‒18
two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Optimal Dividend and reinsurance strategy of a Property Insurance Company under Catastrophe Risk By Zongxia Liang; Lin He; Jiaoling Wu
  2. Uncertainty of Governmental Relief and the Crowding out of Insurance By Paul A. Raschky; Reimund Schwarze; Manijeh Schwindt; Ferdinand Zahn

  1. By: Zongxia Liang; Lin He; Jiaoling Wu
    Abstract: We consider an optimal control problem of a property insurance company with proportional reinsurance strategy. The insurance business brings in catastrophe risk, such as earthquake and flood. The catastrophe risk could be partly reduced by reinsurance. The management of the company controls the reinsurance rate and dividend payments process to maximize the expected present value of the dividends before bankruptcy. This is the first time to consider the catastrophe risk in property insurance model, which is more realistic. We establish the solution of the problem by the mixed singular-regular control of jump diffusions. We first derive the optimal retention ratio, the optimal dividend payments level, the optimal return function and the optimal control strategy of the property insurance company, then the impacts of the catastrophe risk and key model parameters on the optimal return function and the optimal control strategy of the company are discussed.
    Date: 2010–09
  2. By: Paul A. Raschky; Reimund Schwarze; Manijeh Schwindt; Ferdinand Zahn
    Abstract: This paper discusses the problem of crowding out of insurance by co-existing governmental relief programs - so-called ’charity hazard’ - in a context of different institutional schemes of government relief in Austria and Germany. We test empirically whether an assured partial relief scheme (as in Austria) drives a stronger crowding out of private insurance than a scheme promising full relief which is subject to ad hoc political decision making (as in Germany). Our general finding is that the institutional design of governmental relief programs significantly affects the demand for private natural hazard insurance.
    Keywords: Insurance demand, governmental relief, natural hazards
    JEL: D78 D81 G22 Q54
    Date: 2010–05

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