Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy

The authors provide a conceptual framework for designing a comprehensive risk financing strategy for a firm, using an optimal combination of three instruments: self-retention, contingent debt, and insurance. Using an original conceptual model, the...

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Main Authors:	Gurenko, Eugene, Mahul, Olivier
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ADMINISTRATIVE COSTS AGENTS ATTACHMENT POINT BALANCE SHEET BORROWING BORROWING CONSTRAINTS BUSINESS CYCLES CAPITAL MARKETS CATASTROPHIC RISKS COINSURANCE CONCEPTUAL FRAMEWORK CONTRACTUAL SAVINGS COVERAGE DEBT DEBT CAPACITY DECISION MAKING DEFAULT RISK ECONOMIC BEHAVIOR ECONOMICS ECONOMISTS EQUITY CAPITAL FINANCIAL INTERMEDIARIES FINANCIAL MARKETS FINANCIAL SERVICES INCOME INDEMNITY INFORMATION ASYMMETRIES INSURANCE INSURANCE COVERAGE INSURANCE INDUSTRY INSURANCE PRODUCTS INSURANCE RATES INSURED LOSSES INSURERS MICROFINANCE MICROINSURANCE PROBABILITY OF DEFAULT PROFITABILITY PROGRAMS REINSURANCE RESERVES RETAINED EARNINGS RISK ALLOCATION RISK AVERSION RISK MANAGEMENT RISK MANAGERS RISK PREMIUM RISK SHARING RISK TRANSFER TRADEOFFS INSURANCE INDUSTRY FINANCING PLANS CONTINGENCY FINANCING DEBT FINANCING CORPORATE FINANCE SELF FINANCING RISK ASSESSMENT COST FUNCTIONS BORROWING COSTS SAVINGS BEHAVIOR ACCESS TO CREDIT MICROECONOMICS MACROECONOMIC CONTEXT TRADEOFFS
Online Access:	http://documents.worldbank.org/curated/en/2003/11/2813253/combining-insurance-contingent-debt-self-retention-optimal-corporate-risk-financing-strategy http://hdl.handle.net/10986/17904

id	okr-10986-17904
recordtype	oai_dc
spelling	okr-10986-179042021-04-23T14:03:40Z Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy Gurenko, Eugene Mahul, Olivier ADMINISTRATIVE COSTS AGENTS ATTACHMENT POINT BALANCE SHEET BORROWING BORROWING CONSTRAINTS BUSINESS CYCLES CAPITAL MARKETS CATASTROPHIC RISKS COINSURANCE CONCEPTUAL FRAMEWORK CONTRACTUAL SAVINGS COVERAGE DEBT DEBT CAPACITY DECISION MAKING DEFAULT RISK ECONOMIC BEHAVIOR ECONOMICS ECONOMISTS EQUITY CAPITAL FINANCIAL INTERMEDIARIES FINANCIAL MARKETS FINANCIAL SERVICES INCOME INDEMNITY INFORMATION ASYMMETRIES INSURANCE INSURANCE COVERAGE INSURANCE INDUSTRY INSURANCE PRODUCTS INSURANCE RATES INSURED LOSSES INSURERS MICROFINANCE MICROINSURANCE PROBABILITY OF DEFAULT PROFITABILITY PROGRAMS REINSURANCE RESERVES RETAINED EARNINGS RISK ALLOCATION RISK AVERSION RISK MANAGEMENT RISK MANAGERS RISK PREMIUM RISK SHARING RISK TRANSFER TRADEOFFS INSURANCE INDUSTRY FINANCING PLANS RISK MANAGEMENT CONTINGENCY FINANCING DEBT FINANCING CORPORATE FINANCE SELF FINANCING RISK ASSESSMENT COST FUNCTIONS BORROWING COSTS SAVINGS BEHAVIOR ACCESS TO CREDIT MICROECONOMICS MACROECONOMIC CONTEXT TRADEOFFS The authors provide a conceptual framework for designing a comprehensive risk financing strategy for a firm, using an optimal combination of three instruments: self-retention, contingent debt, and insurance. Using an original conceptual model, the risk management decisions of the firm are first decomposed into two sets-choosing attachment points for each layer of financing used in the overall risk financing structure, and, then determining optimal risk allocation arrangements within each layer of risk. This model allows the authors to show how these optimal risk financing arrangements are driven by the costs of risk management instruments, the risk characteristics, and the firm's borrowing constraints. Finally, the authors provide an original perspective to think about optimal ex ante risk management strategies, based on a combination of insurance, savings, and credit at the microeconomic or macroeconomic levels. 2014-04-17T19:06:09Z 2014-04-17T19:06:09Z 2003-11 http://documents.worldbank.org/curated/en/2003/11/2813253/combining-insurance-contingent-debt-self-retention-optimal-corporate-risk-financing-strategy http://hdl.handle.net/10986/17904 English en_US Policy Research Working Paper;No. 3167 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ADMINISTRATIVE COSTS AGENTS ATTACHMENT POINT BALANCE SHEET BORROWING BORROWING CONSTRAINTS BUSINESS CYCLES CAPITAL MARKETS CATASTROPHIC RISKS COINSURANCE CONCEPTUAL FRAMEWORK CONTRACTUAL SAVINGS COVERAGE DEBT DEBT CAPACITY DECISION MAKING DEFAULT RISK ECONOMIC BEHAVIOR ECONOMICS ECONOMISTS EQUITY CAPITAL FINANCIAL INTERMEDIARIES FINANCIAL MARKETS FINANCIAL SERVICES INCOME INDEMNITY INFORMATION ASYMMETRIES INSURANCE INSURANCE COVERAGE INSURANCE INDUSTRY INSURANCE PRODUCTS INSURANCE RATES INSURED LOSSES INSURERS MICROFINANCE MICROINSURANCE PROBABILITY OF DEFAULT PROFITABILITY PROGRAMS REINSURANCE RESERVES RETAINED EARNINGS RISK ALLOCATION RISK AVERSION RISK MANAGEMENT RISK MANAGERS RISK PREMIUM RISK SHARING RISK TRANSFER TRADEOFFS INSURANCE INDUSTRY FINANCING PLANS RISK MANAGEMENT CONTINGENCY FINANCING DEBT FINANCING CORPORATE FINANCE SELF FINANCING RISK ASSESSMENT COST FUNCTIONS BORROWING COSTS SAVINGS BEHAVIOR ACCESS TO CREDIT MICROECONOMICS MACROECONOMIC CONTEXT TRADEOFFS
spellingShingle	ADMINISTRATIVE COSTS AGENTS ATTACHMENT POINT BALANCE SHEET BORROWING BORROWING CONSTRAINTS BUSINESS CYCLES CAPITAL MARKETS CATASTROPHIC RISKS COINSURANCE CONCEPTUAL FRAMEWORK CONTRACTUAL SAVINGS COVERAGE DEBT DEBT CAPACITY DECISION MAKING DEFAULT RISK ECONOMIC BEHAVIOR ECONOMICS ECONOMISTS EQUITY CAPITAL FINANCIAL INTERMEDIARIES FINANCIAL MARKETS FINANCIAL SERVICES INCOME INDEMNITY INFORMATION ASYMMETRIES INSURANCE INSURANCE COVERAGE INSURANCE INDUSTRY INSURANCE PRODUCTS INSURANCE RATES INSURED LOSSES INSURERS MICROFINANCE MICROINSURANCE PROBABILITY OF DEFAULT PROFITABILITY PROGRAMS REINSURANCE RESERVES RETAINED EARNINGS RISK ALLOCATION RISK AVERSION RISK MANAGEMENT RISK MANAGERS RISK PREMIUM RISK SHARING RISK TRANSFER TRADEOFFS INSURANCE INDUSTRY FINANCING PLANS RISK MANAGEMENT CONTINGENCY FINANCING DEBT FINANCING CORPORATE FINANCE SELF FINANCING RISK ASSESSMENT COST FUNCTIONS BORROWING COSTS SAVINGS BEHAVIOR ACCESS TO CREDIT MICROECONOMICS MACROECONOMIC CONTEXT TRADEOFFS Gurenko, Eugene Mahul, Olivier Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy
relation	Policy Research Working Paper;No. 3167
description	The authors provide a conceptual framework for designing a comprehensive risk financing strategy for a firm, using an optimal combination of three instruments: self-retention, contingent debt, and insurance. Using an original conceptual model, the risk management decisions of the firm are first decomposed into two sets-choosing attachment points for each layer of financing used in the overall risk financing structure, and, then determining optimal risk allocation arrangements within each layer of risk. This model allows the authors to show how these optimal risk financing arrangements are driven by the costs of risk management instruments, the risk characteristics, and the firm's borrowing constraints. Finally, the authors provide an original perspective to think about optimal ex ante risk management strategies, based on a combination of insurance, savings, and credit at the microeconomic or macroeconomic levels.
format	Publications & Research :: Policy Research Working Paper
author	Gurenko, Eugene Mahul, Olivier
author_facet	Gurenko, Eugene Mahul, Olivier
author_sort	Gurenko, Eugene
title	Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy
title_short	Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy
title_full	Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy
title_fullStr	Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy
title_full_unstemmed	Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy
title_sort	combining insurance, contingent debt, and self-retention in an optimal corporate risk financing strategy
publisher	World Bank, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2003/11/2813253/combining-insurance-contingent-debt-self-retention-optimal-corporate-risk-financing-strategy http://hdl.handle.net/10986/17904
_version_	1764438455133143040

Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy

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