DETERMINATION OF THE PORTFOLIO SELECTION FOR A PROPERTY-LIABILITY INSURANCE COMPANY

This paper presents an analysis of a portfolio model which can be used to assist a property-liability insurance company in determining the o ptimal composition of the insurance and investment portfolios. By intr oducing insurer's threshold risk and relaxing some non-realistic assum ptions made in traditional chance constraint insurance and investment portfolio models, we propose a method for an insurer to maximize his r eturn threshold for a given threshold risk level. This proposed model can be used to optimize the composition of underwriting and investment portfolios regarding the insurer's threshold risk level, as well as t o generate the efficient frontier by adjusting insurer's threshold ris k levels. A numerical example is given based on the industry's aggrega ted data for a sixteen year period.