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  • 2013 Fall: Volume 11, Issue 2
  • Surplus Sensitivity and Immunization of Property and Liability Insurers

    • Jin Park ;
    • B. Paul Choi ;
    • Dohan Song ;
    • Sukho Lee ;

    Title:

    Surplus Sensitivity and Immunization of Property and Liability Insurers

    Author(s):

    Jin Park
    B. Paul Choi
    Dohan Song
    Sukho Lee

    Publication Date:

    2013

    Journal Title:

    The Journal of Finance Issues

    Volume Number:

    11

    Issue Number:

    2

    Abstract:

    The P/L insurers were exposed to a great amount of risk from changes in interest or inflation rates because the over 83 percent of insurers assets are invested in bonds and stocks, of which values are inflation or interest rate sensitive. In addition, the insurer’s liability is not free from interest rate risk, too. This study is designed to examine IRR exposures of P/L insurers and to identity how surplus immunization strategy should be designed given the IRR exposures. Using insurers predominantly underwriting private passenger auto lines of business, this study finds that sample insurers were not actively practice surplus immunization management. For P/L insurers investigated in this study, surplus immunization was not only sub-optimal, but also infeasible.