Dynamic portfolio management for property and casualty insurance

Giorgio Consigli, Massimo di Tria, Michele Gaffo, Gaetano Iaquinta, Vittorio Moriggia, Angelo Uristani

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

7 Scopus citations

Abstract

Recent trends in the insurance sector have highlighted the expansion of large insurance firms into asset management. In addition to their historical liability risk exposure associated with statutory activity, the growth of investment management divisions has caused increasing exposure to financial market fluctuations. This has led to stricter risk management requirements as reported in the Solvency II 2010 impact studies by the European Commission. The phenomenon has far-reaching implications for the definition of optimal asset–liability management (ALM) strategies at the aggregate level and for capital required by insurance companies. In this chapter we present an ALM model which combines in a dynamic framework an optimal strategic asset allocation problem for a large insurer and property and casualty (P&C) business constraints and tests it in a real-world case study. The problem is formulated as a multistage stochastic program (MSP) and the definition of the underlying uncertainty model, including financial as well as insurance risk factors, anticipates the model’s application under stressed liability scenarios. The benefits of a dynamic formulation and the opportunities arising from an integrated approach to investment and P&C insurance management are highlighted in this chapter.

Original languageBritish English
Title of host publicationInternational Series in Operations Research and Management Science
Pages99-124
Number of pages26
DOIs
StatePublished - 2011

Publication series

NameInternational Series in Operations Research and Management Science
Volume163
ISSN (Print)0884-8289

Keywords

  • Asset–liability management
  • Insurance liabilities
  • Multistage stochastic programming
  • Property and casualty insurance

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