Valuing An Insurance Enterprise

The valuation methodology described in this paper follows from minimum sufficiency levels for reserves. The valuation is risk adjusted both for uncertainty in claims payments and uncertainty in investments. Attribution of capital is inherent in the method of determining minimum sufficiency levels. Value of an enterprise is seen its consisting of two parts: (I) current asset levels beyond what is required for minimum reserve sufficiency; and (2) capital release that is expected by virtue of the chance-constrained properties of the conservative minimum sufficiency levels. The valuation of an insurance enterprise in a runoff mode seeks to know the capital required to support the runoff of the enterprise and the probability distribution of the release of excess capital back to shareholders for each of the forecast periods. Because the approach relies on bootstrap methods, there is no explicit measurement of either process or parameter risk that ordinarily appears in dynamic financial analysis.