Financial models of insurance solvency

This is the second of two volumes of the proceedings of the First International Conference on Insurance Solvency held at the Wharton School, University of Pennsylvania. The papers presented at the Conference are published in two volumes, this book, and a companion volume, Classical insurance Solvency Theory, J.D. Cummins and R.A. Derrig, eds. (Norwell, MA: Kluwer Academic Publishers, 1988). The first volume presented two papers reflecting important advances in actuarial solvency theory. This volume goes beyond the actuarial approach to encompass papers applying the insights and techniques of financial economics. The first part of the book consists o papers that adopt an essentially actuarial or statistical approach to solvency modelling. These papers represent methodology advances over prior efforts at operational modelling of insurance companies. The emphasis is on cash flow analysis, and many of the models incorporate investment income, inflation, taxation and other economic variables. The second part brings financial economics to bear on various aspects of solvency analysis. These papers discuss insurance applications of asset pricing models, capital structure theory, and the economic theory of agency.