Description: Empirical evidence of reported losses suggests that insurance firms are interconnected in a nontrivial way, making them prone to systemic risk. Systemic risk can be viewed as the result of a cascading process, as it unravels throughout a network structure. In response, this work presents a simple analytical model that can simulate this process. The model is subsequently tested upon an empirical dataset via the means of numerical simulations. This work makes three main contributions. First, it provides a novel methodology for quantitatively and objectively assessing the systemic role of individual firms within the insurance domain. Second, it exemplifies the inability of traditional, firm-based information in serving as proxies for mapping these systemic effects. Third, it provides a practical example where network-based information (e.g., Criticality IDX, Sensitivity IDX) can outperform firm-based information (e.g., admissible assets, excess c apital) resulting in increased efficiency in the decision-making process. These findings strengthen the need to account for the interconnected nature of the domain while showcasing some of the potential benefits that can be harvested by doing so.

Description: Risk management and capital budgeting are two critical components of the corporate decision process. They often need to be considered jointly at the corporate level because of their natural interaction through the dependent risk exposures and other synergetic relationships within an intricate corporate structure in a dynamic business environment. . This paper develops an integrated framework that aligns these two important corporate strategies across business divisions to optimize the streamlined enterprise strategic goal in a multi-period setting. The proposed integrated framework can serve as a practical guideline for corporate executives to optimally coordinate capital budgeting and risk management at the enterprise level.