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on Insurance Economics |
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Issue of 2013‒01‒12
two papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Koehne, Sebastian; Kuhn, Moritz |
| Abstract: | Empirical studies show that job search behavior depends on the financial situation of the unemployed. Starting from this observation, we ask how unemployment insurance policy should take the individual financial situation into account. We use a quantitative model with a realistically calibrated unemployment insurance system, individual consumption-saving decision and moral hazard during job search to answer this question and find that the optimal policy provides unemployment benefits that increase with individual assets. By implicitly raising interest rates, asset-increasing benefits encourage self-insurance, which facilitates consumption smoothing during unemployment, but does not exacerbate moral hazard for job search. Asset-increasing benefits also have desirable properties from a dynamic perspective, because they emulate key features of the dynamics of constrained efficient allocations. The welfare gain from introducing asset-increasing benefits is substantial and amounts to 1.5 % of consumption when comparing steady states and 0.8 % of consumption when taking transition costs into account. More generous replacement rates or benefits targeted to asset-poor households, by contrast, have a negative effect on welfare. -- |
| JEL: | E21 H21 J65 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc12:66056&r=ias |
| By: | Gurenko, Eugene N.; Itigin, Alexander |
| Abstract: | This paper compares solvency capital requirements under Solvency I and Solvency II for a sample mid-size insurance portfolio. According to the results of a study, changing the solvency capital regime from Solvency I to Solvency II will lead to a substantial additional solvency capital requirement that might represent a heavy burden for the company's shareholders. One way to reduce the capital requirement under Solvency II is to increase reinsurance protection, which will reduce the net retained risk exposure and hence also the solvency capital requirement. Therefore, this paper proposes an extended reinsurance structure that, under Solvency II, brings the capital requirement back to the level of that required under Solvency I. In a step-by-step approach, the paper demonstrates the extent of solvency relief attained by the insurer by applying different possible adjustments in the reinsurance structure. To evaluate the efficiency of reinsurance as the solvency capital relief instrument, the authors introduce a cost-of-capital based approach, which puts the achieved capital relief in relation to the costs of extending the reinsurance protection. This approach allows a direct comparison of reinsurance as a capital relief instrument with debt instruments available in the capital market. With the help of the introduced approach, the authors show that the best capital relief efficiency under all examined reinsurance alternatives is achieved when a financial quota share contract is chosen for proportional reinsurance. |
| Keywords: | Insurance&Risk Mitigation,Insurance Law,Debt Markets,Banking Law,Hazard Risk Management |
| Date: | 2013–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6306&r=ias |