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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Economic Valuation and Financial Management of an Insurance Firm |
| Organization Unit | |
| Authors |
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| Language |
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| Series Name | SSRN |
| Number | 3211146 |
| Date | 2018 |
| Abstract Text | We use a dynamic framework to address the questions: i) when should an insurance firm pay out dividends and raise (costly) capital and ii) when should an insurance firm take (liquid) investment risk. Financial decisions are made by a manager who strives to maximize firm value and operates in the presence of financial frictions and regulatory capital constraints. We show there is a unique pricing measure that is consistent with market prices and a broad ownership base and use it to compute the risk-adjusted net present value of cash flows to shareholders. We describe the capital and dividend strategies of the firm and show that, from a shareholder perspective, investment in risky assets can be value adding. Risky investments may add value by boosting the value of the option to default or, sometimes, by increasing the firm's franchise value. |
| Official URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3211146 |
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