Description: Shareholders provide capital and receive the insurance profit. This paper demonstrates than an optimal capital level exists that generates the highest return for the shareholders of an insurance company. This result is derived using a risk capital model by Perold. The no-arbitrage argument, developed by Modigliani and Miller, is used throughout the paper and puts the discussion on a solid economic footing. From 2006 Enterprise Risk Management Symposium, M-AS06-1.