Optimal capital structure for insurance companies

This paper analyzes the capital structure decision that insurance companies face.A structural microeconomic model is constructed and solved by means of dynamic optimization. The model allows for a careful analysis of various aspects pertaining to the basic economic trade-off between increasing the level of surplus capital on the one hand, incurring high costs in imperfect capital markets, and decreasing thesurplus level on the other, eroding the quality and value of insurance protection offered.