A Study of the Effects of Asset/Liability Mismatch on Property/Casualty Insurance Companies

It has long been recognized that property/casualty insurance companies assume risk through the underwriting process and that in the course of this subject surplus to variations in financial results. This aspect of property/casualty company insurance operations has been intensively investigated over a long period. Less attention has been paid to the risks proceeding from the management of company assets. Changes in the levels and volatility of interest rates in the recent past have increased the need to understand and quantify these risks. The Financial Analysis Committee ("Committee") has been working on this problem almost since its inception in early 1986. A computer model has been used to quantify the effects of various levels of asset/liability mismatch under different conditions in the financial markets. This paper presents the Committee's initial findings.