This thesis addresses the need to reduce inefficiencies in management of insurance company risk capital. The laxity in managing the cost of capital is a result of dysfunctional property/casualty risk classification and capital accumulation practices in the insurance industry. We reclassify risk based on both peril and financial functional features, in order to capture all the facets of risk affecting a firm and ultimately to achieve optimal capital allocation. With the purpose of reducing inefficiencies in mind, we explore and isolate the impact of regulation on insurance company profitability. We use barrier option pricing models to mimic the impact of solvency requirements on firm-wide risk. This methodology of measuring risk is better than plain vanilla option pricing models, in that, through the option to an early default, we are able to capture the economic significance of financial distress, and allocate firm-wide risk capital. The firm-wide risk is incidentally used to empirically test the impact of risk on the cost of carry, the quality of operational profitability and forward asset commitment per unit of liabilities. Our empirical test confirms a strong relationship between firm-level risk, and the cost of carry, return on policyholders' surplus and the cost of capital per contract underwritten. The results are better than previous results obtained using plain vanilla option-pricing models and reveal the importance of incorporating solvency requirements in defining the economic significance of insolvency. The results also points to the importance of advised risk classification procedures to the whole process of integrated risk measurement and financing, which we explore in this study.

This thesis takes as its starting point a set of questions raised by the regulatory politics school of thought. These questions are addressed from the specific perspective of the insurance sector during the European single market programme of the late 1980s to early 1990s. The focus is on German and British sectoral and governmental actors and their interaction with EC-level institutions (in particular the European Commission), rules and policies. The thesis addressesis sueso f regulatory autonomy, regime change, interest representation and the evolution of norms and ideas in the context of the European single market. The issues are examined from three interdependent levels of governance: (a. ) multilateral (the negotiations during the Uruguay Round, leading to the GATS); (Chapter 2); (b. ) the European Community level (the Single Market); (Chapter 3 and Chapter 4); and (c. ) domestic policy reform (German reform of insurance regulation in the context of the Single Market Programme) (Chapter 5). These sector-specific developments are set into the broader context of the debate on the nature of European integration. An institutionalist account is contrasted with a critical evaluation of the realist school of European studies and its origins in public choice theory. A central, guiding question is: what different "landscapes" do we perceive if we observe (de- and re-) regulation through the analytical "lenses" of economic accounts of regulation and institutionalist approaches? Public choice theories, it is argued, focus almost exclusively on efficiency concerns and utility (whether at the level of the individual or at the level of the company), neglecting broader social ideas that motivate decision-makers, as well as the impact of institutions on choice and collective strategies. It is concluded that, despite trade liberalisation and deregulation, regulatory practices in the insurance sector continue to be driven by normative "road maps", anchored in and mediated by national institutions and historical experiences

The insurance industry is becoming increasingly exposed to the adverse impacts of climate variability and climate change. In developing policies and adapting strategies to better manage climate risk, insurers and reinsurers are therefore engaging directly with the climate modelling community to further understand the predictive capabilities of climate models and to develop techniques to utilise climate model output. With an inherent interest in the present and future frequency and magnitude of extreme climate-related loss events, insurers rely on the climate modelling community to provide informative model projections at the relevant spatial and temporal scales for insurance decisions. Furthermore, given the high economic stakes associated with enacting strategies to address climate change, it is essential that climate model experiments are designed to thoroughly explore the multiple sources of uncertainty. Determining the reliability of model based projections is a precursor to examining their relevance to the insurance industry and more widely to the climate change adaptation community. Designing experiments which adequately account for uncertainty therefore requires careful consideration of the nonlinear and chaotic properties of the climate system. Using the well developed concepts of dynamical systems theory, simple nonlinear chaotic systems are investigated to further understand what is meant by climate under climate change. The thesis questions the conventional paradigm in which long-term climate prediction is treated purely as a boundary value problem (predictability of the second kind). Using simple climate-like models to draw analogies to the climate system, results are presented which support the emerging view that climate prediction ought to be treated as both an initial value problem and a boundary condition problem on all time scales. The research also examines the application of the ergodic assumption in climate modelling and climate change adaptation decisions. By using idealised model experiments, situations in which the ergodic assumption breaks down are illustrated. Consideration is given to alternative model experimental designs which do not rely on the assumption of ergodicity. Experimental results are presented which support the view that large initial condition ensembles are required to detail the changing distribution of climate under altered forcing conditions. It is argued that the role of chaos and nonlinear dynamic behaviour ought to have more prominence in the discussion of the forecasting capabilities in climate prediction.

This thesis that I am submitting to the department of Insurance and Investment studies at the City University Business School is essentially a report on the development, formation, operation and effects of the NSSS to the local Zimbabwean market. The NSSS is a quasi- independent government company that operates under the National Social Security Authority (NSSA) whose formation was to provide a framework for the provision of various social security benefits by such organisations as the NSSS. This thesis is divided into three broad parts. The first part draws from an historical experience of the development of social insurance in general and Zimbabwean oldage insurance in particular. This part is the basis of understanding the foundation and philosophy behind the formation and expansion of the social security programmes as strong economic and political tools across the modem world. The second segment of this report is the focus on political and economic theories that seek to explain the existence of social insurance in various economies. The last part of the thesis is a particular study of the Zimbabwean pensions market following the introduction of the NSSS and draws from household survey and original source material that has not previously been subject to analysis. This study has paid particular attention to the forces that have played crucial roles in shaping the development of the NSSS. Contrary to what we expected at the beginning of this study, the NSSS has had little adverse effect to the private schemes and general perception in risk taking behaviour, particularly to the middle class. The NSSS has in fact, had a marginal and effective positive effect in changing people's attitude towards the risk of longevity and long-term loss of income due to perils otherwise insured under the national scheme. This study has also shown that there was inadequate consultation prior to the formation of the NSSS and that political interests took priority over economic considerations. The scepticism and forces of suspicion within the market are explained within the framework of this thesis.

stochastic approach to decision-making in defined benefit pension schemes is presented. Existing decision-making tools in the form of actuarial valuations and asset and liability modelling are discussed. These tools are shown to be inadequate to fully address the objectives of the various stakeholders. Pension fund control using a quadratic criteria with linear factors is studied in the case where the fund is invested in a risk-free asset and a risky asset. Optimal asset allocation strategies are shown to be counter-intuitive. The optimal strategy is shown to involve increasing the allocation in the risky asset as the fund deficit increases and increasing the allocation in the risk-free asset as the fund deficit decreases. It is further shown that increasing the weight on the linear factors leads to an increase in the optimal allocation in the risky asset. A risk management approach to decision-making is presented. This is shown to be a more satisfactory decision-making tool in terms of setting the funding and investment strategies. The objectives of the stakeholders are addressed through downside risk measures and a performance measure for the cost. Methods of solving the problem are discussed: an indifference curve approach and a stochastic multi-objective approach leading to Pareto optimal solutions. It is shown that, in the indifference curve approach, an "efficient region" exists. This efficient region is such that all funding and investment strategies outside this region are inefficient; that is, such strategies can be improved by choosing strategies in the region. On the other hand in the multi-objective approach, pareto optimal investment strategies are located along an "efficient frontier". An extension to the stochastic approach is presented. Optimal funding and asset allocation strategies, over a range of projection horizons, are determined by taking into account the probability of default by the sponsoring employer. It is shown that, over a short-term horizon, bond-only asset allocation strategies are optimal, whilst over a longer horizon equity-backed asset allocation strategies are optimal.

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Many households in developing and developed countries will face increased extreme weather events due to climate change. Insurance could be a key coping strategy against the associated impacts of extreme weather. There is value in better understanding the characteristics that make insurance an appropriate means of coping for some sub-groups over others. The framework for household decisions to insure used in this research focuses on four factors: 1. economic, 2. social and cultural, 3. structural, and 4. personal and demographic. This thesis considers two case studies: agricultural index-based microinsurance in rural Uganda and home flood insurance in the USA It seeks to understand intended demand and the related drivers for insurance in these settings through the use of large-N surveys, field games, and on-line simulations. The rural Ugandan survey tool was implemented using innovative smart-phone technology and yielded 3000+ observations of expressed willingness-to-join (WTJ) and willingness-to-pay (WTP) for agricultural microinsurance. This tool also obtained information concerning propensity to engage with alternative coping strategies, both formal and informal. It also obtained household indicators of the factor classesnoted above. A separate field game in Uganda investigated attitudes towards basis risk arising from index insurance using a novel, iterative game involving farmers allocating their wealth between insurance and crop production. The game is played in partner sets to gauge the relative influence of others’ decisions and outcomes on one’s choice to insure. The USA study compares propensity to purchase flood insurance between those affected and unaffected by Hurricane Sandy in the same geographic areas. We obtained 800 observations from an online survey tool, combining survey questions and a flood insurance purchase simulation. In the simulation we include as a treatment a more extensive (graphical) presentation of expected losses to assess the effect oninsurance uptake rates. In the Ugandan case, WTJ is over 95% and the average WTP is moderate relative to household wealth. For our sample there is evidence that microinsurance and loans are substitutes and the most frequently chosen traditional coping strategy is selling cattle. In the American study, respondents insure in just over 50% of the presented simulations and over 60% have a positive stated WTJ. Notably, there is little insurance demand difference between cohorts affected and unaffected by Hurricane Sandy. In both studies, a significant proportion of respondents with disparate personal characteristics chose to always or never insure, regardless of the details of the simulation scenarios, though WTJ varies positively with expected losses; this behaviour may be related to affect from the feeling of insurance. In the Ugandan study, occurrence of basis risk reduces WTJ in the following period and respondents clearly are affected by the choices made by their partners. In the American study, insurance adoption is greater for the cohort exposed to the more extensive (graphical) presentation of expected losses. In both cases we find that of the four factor classes social and cultural as well as structural factors are frequently significant in regression models for intended insurance demand. As weather-related covariate risks increase in the future, households need coping mechanisms that are culturally viable and conform to individuals’ preferences. This thesis demonstrates methods by which to determine intended demand for extreme weather insurance in the developing and developed country contexts. Such information can inform the development of insurance tools consistent with consumer preferences and help identify households that may be the best candidates for use of insurance.

The aim of this thesis is to explore the question: can scientific models improve insurance pricing? Model outputs are often converted to forecasts and, in the context of insurance, the supplementary questions: ‘are forecasts skillful?’ and ‘are forecasts useful?’ are examined. Skill score comparison experiments are developed allowing several scores in common use to be ranked. One score is shown to perform well; several others are shown to have systematic failings; with the conclusion that these should not be used by insurers. A new skill score property ‘Feasibility’ is proposed which highlights a key shortcoming of some scores in common use. Variables from a well known dynamical system are used as a proxy for an insurable index. A new method relating the system and its models is presented using skill scores to find their score optimal piecewise linear relationship. The index is priced using both traditional techniques and new methods that use the score optimal relationship. One new method is very successful in that it produces lower prices on average, is more profitable and leads to a lower probability of insurer failure. In this context the forecasts are both skilful and useful. The efficacy of forecast use is further explored by considering hurricane insurance. Here forecasts are shown to be useful only if very simple adjustments to pricing are made. A novel agent based model of a two company insurance industry containing many key features in the real world is presented enabling the impact of regulation and competition to be assessed. Several common practices are shown to reduce expected company lifetime.

Insurance market failures are common in developing countries and one commonly proposed explanation for this is the presence of asymmetric information. In this paper I test for the relative importance of adverse selection and moral hazard for car insurance using a randomised experiment at the largest insurance company in Mongolia, randomly upgrading low coverage buyers to a higher coverage. With this experiment, I find significant ex-ante adverse selection for third party and theft risks, while there is no evidence of ex-post moral hazard for either risk. Moreover, I find no evidence of adverse selection or moral hazard for coverages differing in co-payment rates. I also discuss how certain market features, likely to be perceived as specific to this context, are common in other insurance markets in developing countries, and whether these factors are likely to be driving the results in this paper.

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