MANAGING THE TAX LIABILITY OF A PROPERTY-LIABILITY INSURANCE COMPANY

The income tax burden placed upon a property-liability insurance compa ny creates a variable liability with profound effects on the functioni ng of the enterprise. It directly affects product pricing lid asset in vestment policies and, therefore, the potential profitability of the i nsurer. Research has identified fuzzy set theory as a potentially usef ul modeling paradigm for insurance uncertainty-in claim cost forecasti ng, underwriting, rate classification, and premium determination. We v iew the insurance liabilities, properly priced, as a management tool o f the short position in the government tax option. To implement that t ool, we propose a new method of measuring uncertainty of taxes. Critic al parameters of underwriting and investment are modeled as fuzzy numb ers, leading to a model of uncertainty in the tax rate, rate of return , and the asset-liability mix.