In enterprise risk management, strategies should be evaluated and managed from a multiyear view. In this paper, we present a multi-year model approach and apply a multi-year riskcapital concept to enable the company's "Own Risk and Solvency Assessment" as a part of enterprise risk management on a multi-year basis. We show under which assumptions an allocation method gives the "right" strategic incentives. We illustrate the usefulness of the concept for managerial decision support using data from a German non-life insurer.
Purpose -The purpose of this paper is to illustrate how risk capital can be calculated and allocated in a multi-year context. This is an important issue, since strategic management and decision making within insurance companies require a multi-year time horizon (instead of a one-year time horizon, as set out in solvency models). Design/methodology/approach -After defining risk capital in a multi-year context, the paper discusses the different properties of the multi-year risk capital concept. The paper also presents an allocation rule of how to allocate the multi-year risk capital to individual years as well as to individual segments. The paper applies the author's model framework in an application study to illustrate the different effects. Findings -The paper shows how multi-year risk capital can be used as a basis for analyzing different management strategies within risk and return indicators in the context of value-based management. Furthermore, the paper demonstrates the effect of allocating risk capital in a multi-year context. Originality/value -The analysis provides new and relevant information to insurance companies' management. Whereas usually solvency rules set out a time horizon of one year, in the context of internal risk models a multi-year planning horizon is taken into account. Management needs to get an idea of how much risk capital is necessary in order to survive the next five years without external capital supply. The paper presents an answer to these questions.
2009),"The insurance distribution systems and efficiency in the property-casualty insurance industry", Managerial Finance, Vol. 35 Iss 8 pp. 670-681 http:// dx.If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
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AbstractPurpose -The purpose of this paper is to transfer the concept of market-consistent embedded value (MCEV) from life to non-life insurance. This is an important undertaking since differences in management techniques between life and non-life insurance make management at the group level very difficult. The purpose of this paper is to offer a solution to this problem. Design/methodology/approach -After explaining MCEV, the authors derive differences between life and non-life insurance and develop a MCEV model for non-life business. The model framework is applied to a German non-life insurance company to illustrate its usefulness in different applications. Findings -The authors show an MCEV calculation based on empirical data and set up an economic balance sheet. The value implications of varying loss ratios, cancellation rates, and costs within a sensitivity analysis are analyzed. The usefulness of the model is illustrated within a value-added analysis. The authors also embed the MCEV concept in a simplified model for an insurance group, to derive group MCEV and outline differences between local GAAP, IFRS and MCEV. Practical implications -The analysis provides new and relevant information to the stakeholders of an insurance company. The model provides information comparable to that provided by embedded value models currently used in the life insurance industry and fills a gap in the literature. The authors reveal significant valuation difference between MCEV and IFRS and argue that there is a need for a consistent MCEV approach at the insurance-group level. Originality/value -The paper presents a new valuation technique for non-life insurance that is easy to use, simple to interpret, and directly comparable to life insurance. Despite the growing policy interest in embedded value, not much academic attention has been given to this methodology. The authors hope that this work will encourage further discussion on this topic in academia and practice.
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