On the cost-of-capital rate under incomplete market valuation

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<title>On the cost-of-capital rate under incomplete market valuation</title>
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<abstract displayLabel="Summary">In this paper we discuss the concept of the cost-of-capital (CoC) rate for an insurance company as an equilibrium in the economic triangle of policyholders, shareholders, and the regulator. This provides a possible rationalization and an economic foundation for a quantity that is widely used in practice but whose value is typically neither technically nor economically well justified. We show how it can be well founded in such a triangular equilibrium. Under a simple one-period model and a valuation procedure of a two-price economy for illiquid assets we provide a corresponding economic-theoretical quantification for the CoC rate. The resulting rates are illustrated by a number of concrete numerical examples.

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<accessCondition type="use and reproduction">La copia digital se distribuye bajo licencia "Attribution 3.0 International (CC BY NC ND 3.0 )"</accessCondition>
<note type="statement of responsibility">Hansjörg Albrecher...[et.al.]</note>
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<topic>Empresas de seguros</topic>
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<title>The Journal of risk and insurance</title>
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<publisher>Nueva York : The American Risk and Insurance Association, 1964-</publisher>
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<identifier type="issn">0022-4367</identifier>
<identifier type="local">MAP20077000727</identifier>
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<text>05/12/2022 Volumen 89 Número 4 - diciembre 2022 , p. 1139-1158</text>
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