Performance Management in Insurance Firms by Using Transfer Pricing


Doff, René and Bilderbeek, Jan and Bruggink, Bert and Emmen, Pieter (2009) Performance Management in Insurance Firms by Using Transfer Pricing. Risk Management and Insurance Review, 12 (2). pp. 213-226. ISSN 1098-1616

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Abstract:In this article, we analyze the asset and liability management and market risk systems of insurance companies. We discuss that the current system is not goal congruent and does not satisfy necessary conditions for effective control. It follows that managers are unable to run their business effectively. We develop a transfer pricing system that allows the clear separation of underwriting and investment activities, both on the risk and return aspects. It creates the appropriate incentive schemes. We illustrate this system with an example indicating the differences in incentives between the traditional embedded value measures and the proposed funds transfer pricing system.
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Copyright:© 2009 Wiley
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