Enterprise risk management, Insurer value maximisation and market frictions

Enterprise risk management has become a major focus for insrurers and reinsurers, Capitalization and pricing decisions are recognized as critical to firm value maximization. Market imperfections including frictional costs of captal such as taxes, agency costs, and financial performance and can have significant impact on firm value maximization by reducing the impact of frictional costs, Insurers oerate in imperfect markets where demand elasticity of policyholders and preferences for financial quality of insurers are important detmerminants of capitalization and pricing strategies. In this paper, we analyze the optimazition of enterpise or firm value in a model with market imperfections, A realistic model of an insurer is developed and calibrated. Frictional cost, imperfectly competitive demand ealsticy, and preferences for financial quality are explicitly modelled an implications for enterprice risk management are quantified