Surplus Sensitivity and Immunization of Property and Liability Insurers
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.