Premium
Performance Management in Insurance Firms by Using Transfer Pricing
Author(s) -
Doff René,
Bilderbeek Jan,
Bruggink Bert,
Emmen Pieter
Publication year - 2009
Publication title -
risk management and insurance review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 16
eISSN - 1540-6296
pISSN - 1098-1616
DOI - 10.1111/j.1540-6296.2009.01164.x
Subject(s) - underwriting , incentive , business , transfer pricing , microeconomics , investment (military) , transfer (computing) , finance , actuarial science , industrial organization , economics , computer science , multinational corporation , politics , parallel computing , political science , law
Abstract In this article, we analyze the asset and liability management and market risk systems of insurance companies. We discuss that the current system is not goal congruent and does not satisfy necessary conditions for effective control. It follows that managers are unable to run their business effectively. We develop a transfer pricing system that allows the clear separation of underwriting and investment activities, both on the risk and return aspects. It creates the appropriate incentive schemes. We illustrate this system with an example indicating the differences in incentives between the traditional embedded value measures and the proposed funds transfer pricing system.