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Kotsch, H. The Risk Consolidation of the Insurance Industry from a Financial Perspective. Journal of Contextual Economics – Schmollers Jahrbuch, 116(3), 359-378. https://doi.org/10.3790/schm.116.3.359
Kotsch, Harald "The Risk Consolidation of the Insurance Industry from a Financial Perspective" Journal of Contextual Economics – Schmollers Jahrbuch 116.3, 1996, 359-378. https://doi.org/10.3790/schm.116.3.359
Kotsch, Harald (1996): The Risk Consolidation of the Insurance Industry from a Financial Perspective, in: Journal of Contextual Economics – Schmollers Jahrbuch, vol. 116, iss. 3, 359-378, [online] https://doi.org/10.3790/schm.116.3.359
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The Risk Consolidation of the Insurance Industry from a Financial Perspective

Kotsch, Harald

Journal of Contextual Economics – Schmollers Jahrbuch, Vol. 116 (1996), Iss. 3 : pp. 359–378

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Duncker & Humblot
DOI
https://doi.org/10.3790/schm.116.3.359
Language
Multiple languages
Pages
20

Kotsch, Harald

References

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Abstract

This paper investigates the risk consolidation of insurance companies (stock corporations) on the basis of the Capital Asset Pricing Model. In the case of uncorrelated risks insurers enjoy economies of scale as the risk markup contained in the premium can be reduced by increasing the number of policies. However, this is not true of correlated risks. The results show furthermore that rational behaviour on the part of insurers involves their carrying out marginal-cost calculations, whereas the so-called “Insurance CAPM” has been implicitly based on average-cost calculations. The equilibrium on the insurance market under the conditions of perfect competition is analyzed from a welfare-economic viewpoint.

Table of Contents

Section Title Page Action Price
Harald Kotsch: The Risk Consolidation of the Insurance Industry\rfrom a Financial Perspective 359
1. Objective 359
2. An insurance company's return 361
3. The market value of an insurance company 362
4. Is there a competitive equilibrium in the insurance market? 364
4.1 Other operating costs of insurance companies 365
4.2 Does a competitive equilibrium in the insurance market lead to a welfare optimum? 365
5. The insurance of perfectly positively correlated risks 367
5.1 No internal risk consolidation 367
5.2 External risk consolidation in the shareholders' portfolios 368
5.3 Positive external effects between the companies 369
6. Perfect positive or perfect negative correlation between the insured risks and the remaining risks in the stock market 369
6.1 No internal risk consolidation 370
6.2 Perfect or no external risk consolidation in the shareholders' portfolios 371
6.3 No external effects between the companies 371
7. Comparison with the Insurance CAPM 372
7.1 Average vs. marginal costing 372
7.2 Security market line and optimum corporate conduct 374
8. Summary 374
References 375
Zusammenfassung 377
Abstract 377

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