Yehuda Kahane - Academia.edu (original) (raw)

Papers by Yehuda Kahane

Astin Bulletin, Mar 1, 1979

Journal of Insurance Issues, 1988

Astin Bulletin, Dec 1, 1979

This paper examines the balancing of the investment and liability portfolios of a (re)insurance f... more This paper examines the balancing of the investment and liability portfolios of a (re)insurance firm operating in the international market. The model captures two effects which are ignored by traditional analysts. (a) According to the Interest Parity Theorem, the expected changes in the exchange rates should already be reflected in the expected rate of return on foreign investments. Therefore, an insurer operating in a perfect market should be indifferent to the currency denomination of its financial assets. (b) A second effect which has often been ignored is related to the additional risk resulting from the unexpected fluctuations of the exchange rates. The multi-index model suggested in this paper is capable of capturing these effects. The model can be used to examine and analyze alternative policies of the firm operating in international markets. For example, the model can be used to examine whether an insurer should take positions in certain currencies, or rather take a "full-hedge" policy.

DOAJ (DOAJ: Directory of Open Access Journals), Jun 1, 2021

Cadmus, Jul 1, 2020

In these past two centuries, capitalism has driven substantial economic growth. However, this gro... more In these past two centuries, capitalism has driven substantial economic growth. However, this growth has not been responsible for the "thrivability" of our planet in terms of society and the environment. This economic model now threatens the continuation of the human species on planet Earth. In 2015, The United Nations created a paradigm shift. All the countries committed to reach 17 Sustainable Development Goals (SDGs) by 2030. Trillions of dollars are going to be invested annually in these goals. But a question remains as to how we can obtain the necessary funds. Long-term pension and insurance funds (including social security) are the perfect candidates: they need long-term investments to back up their commitments. A perfect match! Alas, each dollar invested in the SDGs will not bring high yields, because of "externalities" that are not taken into account. The prospective investor only receives economic profits, while others (government or the public) get the environmental and social benefits. The SDGs represent more than just economic goals, therefore, a dialogue with the capitalist model cannot happen. It will only work if there is an approximation, or new factors/metrics, incorporated into that model that can translate social and environmental benefits into monetary terms. If the SDGs become the business of governments, then they could facilitate an approximate solution. Governments must do this, as they manage the SDGs, and the regulation. If each country issues a special long-term bond which can cover SDG investments with a high yield, it may suffice to return a pension or a social security to the entire population. The cost of the plan is the difference between the rate of the bond yield and the return to the owner of said bond. National accountants know how to make this happen. This way, we finance the SDGs, and create a pension and jobs for millennials and future generations.

Insurance Mathematics & Economics, Dec 1, 1988

It shows The purpose or tnis uulc che Min resuirs e Xisrlng in Che insurance llceracure can he ea... more It shows The purpose or tnis uulc che Min resuirs e Xisrlng in Che insurance llceracure can he easil, ana receive* Unrated usln g a srace-ciai. approach instead of rhe u v,™ the level of insurance purchased A i c ,icpd to show how tne levex teaching. This approach is used chang es as a funcClon of a fi*ed and proportional loadin g facto, an, under ry i ng de g rees of ris, aversion, and alternative state-dependent utility va environment.

Management Science, Jun 1, 1977

This paper sets out a model which simultaneously determines the optimal composition of the insura... more This paper sets out a model which simultaneously determines the optimal composition of the insurance and investment portfolios of an insurance company using Sharpe's Single-Index Technique. This technique can be explained for management as follows: different product lines that a multi-product firm offers have different rates of return and different risks associated with those rates of return. Taking into account both risks and rates of return, what is the best mix of product lines for a firm to offer in the marketplace? This approach is especially suitable for insurance because of data limitations. This type of analysis can make a useful contribution in shaping the firm's product mix and marketing policy.

Insurance Mathematics & Economics, Apr 1, 1985

ABSTRACT The paper demonstrates that a ceding company can fully hedge itself against adverse move... more ABSTRACT The paper demonstrates that a ceding company can fully hedge itself against adverse movements of the exchange rate in the case of excess of loss foreign reinsurance by using the currency option markets.

Geneva Papers on Risk and Insurance-issues and Practice, Dec 1, 1979

The rules may take the form of either a mandatory requirement or guidelines used in the examinati... more The rules may take the form of either a mandatory requirement or guidelines used in the examination of financial statements (which may create the same effects as a mandatory requirement). For example, an insurer may be classified in a "bad range" once the leverage exceeds a certain value, e.g. 2 or 3 (Beckman and Tremeling [1972, p. 213]). The National Association of Insurance Commissioners in the U.S. suggests that insurers should avoid leverage ratios which exceed 2 (NAIC [1970]). The N.A.I.C. approach can be traced back to the early study of R. Kenney [1967]. Kenney studied company failures during the Great Depression and suggested some forty years ago that casualty insurers should avoid leverage ratios which exceed 2, and that fire insurers should keep the ratio below 1. The New York Insurance Department allows a ratio of up to 3.3, and other authorities allows a ratio of up to 4. Hofflander and Duvall [1967, 151, f.n. 3] suggested the replacement of the Kenney ratio by a set of ratios established by English companies. They used the cover ratio (total assets divided by premiums written). A ratio above 1.25 is considered highly desirable whereas a ratio lower than that is undesired. It can, however, be shown that the cover ratio is directly related to the Kenney ratio rule; for example, a stipulation that the cover ratio be 1.25 or higher, when reserves are approximately equal to the premiums, is equivalent to the requirement that the Kenney ratio be less than 4.

Insurance Mathematics & Economics, Jul 1, 1985

Abstract The insured's portfolio consists of an insurable (pure) risk, an uninsurable (specul... more Abstract The insured's portfolio consists of an insurable (pure) risk, an uninsurable (speculative) risk, a (proportional) insurance policy and a risk-free asset. The optimal insurance policy (i.e., the proportion to be insured) is examined from the insured's point of view, using the reward to variability concept. The importance of the risk-free asset in reaching an exact and explicit solution is analyzed, while emphasizing the possibility of substitution of the risk-free investment and insurance mechanisms. The paper demonstrates possibilities of improving the insured's welfare by the use of the risk-free rate - which is sometimes less expensive than other risk reduction instruments. The analysis leads to a two-step solution, similar to the well- known Hirschleifer investment model and to the famous Capital Assets Pricing Model.

Asia-Pacific journal of risk and insurance, 2007

In this paper we discuss the use of modern data mining (DM) methods to design risk-based insuranc... more In this paper we discuss the use of modern data mining (DM) methods to design risk-based insurance premiums for motor vehicles. Our objective is to predict the likelihood and expected value of future claims for each insured based on a myriad of attributes available in the database on the customers and their "peers." The model results may then be used for underwriting and for rate making. We employ a two-stage approach, involving a survival analysis model and a linear regression model, to estimate the risk level of each customer and the proneness to file a claim. The study was performed on actual data set obtained from a small insurance company. We demonstrate our ability to discover new underwriting parameters, build accurate predictive models and to distinguish between distinct groups of policies. The new method creates a new ordering of the policies where the most risky people were, on the average, 12 times more expensive than the least risky people. The importance of the study is not in the particular results, which are specific for the particular company and its environment, but rather in the demonstration of the general ability to use data mining for insurance rate making purposes, and in the original use of the concept of survival analysis and the concept of mean time between claims for this purpose.

Palgrave studies in sustainable business in association with Future Earth, 2019

The paper states that there is an urgent need for a paradigm shift toward a new multidimensional,... more The paper states that there is an urgent need for a paradigm shift toward a new multidimensional, multi-objective economy that serves a diversity of values alongside economic goals. The level of environmental and social threats is developing at an exponential rate and the need for drastic transformation is pressing. The paper warns that any system is guided by the metrics it uses. Metrics do not merely serve as tools for measuring results. They actually act as a compass or dashboard, leading us on our way. In recent years there have been many attempts to create an updated multidimensional dashboard. The OECD countries, for example, have developed what they call “Well-being Indicators.” The Kingdom of Bhutan has created a “Gross National Happiness” index, and the UN the Millennium Sustainable Goals. Such a paradigm shift requires immense investment; trillions of dollars per annum in impact investment. The only potential source of long-term financing is retirement programs. These can be either public sector or the pension plans, retirement and saving programs, and long-term life insurance products of the private sector. The financial institutions in the private sector currently manage for their customers an immense portfolio of approximately $80 trillion.

Scandinavian Actuarial Journal, Oct 1, 1978

This paper suggests an analytic solution for the insurer's efficient frontier, i.e. the b... more This paper suggests an analytic solution for the insurer's efficient frontier, i.e. the best possible combinations of profitability (expected return on equity) and risk levels. The importance of this formula lies in the explicit relationship between the risk and one of its main generators, i.e. the insurance leverage. This relationship is useful for analyzing the problem of regulation and is

Journal of Risk and Insurance, Mar 1, 1978

In this paper, new parameters, representing the funds generated by the insurance. transaction, ar... more In this paper, new parameters, representing the funds generated by the insurance. transaction, are introduced into the portfolio model which balances the investment and underwriting activities of an insurer. An insurance activity with a higher funds-generating coefficient may affect both the insurer's expected profit and its risk level. These effects may. operate in opposite directions, and the net result would be that a line with a higher coefficient will be less desirable under certain circumstances. Such a surprising impact of the coefficients could have occurred in practice, but the recent experience of insurers, where large underwriting losses are reported, makes this effect less likely today. The portfolio behavior of financial intermediaries, and especially insurance companies, has been the subject of recent studies in financial literature. These studies present the technique for a simultaneous optimization of the intermediary's assets and liabilities portfolios,' and focus on various implications of the model for ratemaking and regulation. The purpose of this article is to examine some interesting, and relatively surprising, relationships between the composition of the insurer's portfolio and the fundsgenerating process. The ability of insurers to raise funds from their customers is mainly a result of the time lag between the collection of premiums and the payment of claims. Recent articles have. shown that these liabilities often may bear positive yields to borrowers (and not to the lenders). This relationship results from the use of the Standard Ratemaking Formula which allows for a positive underwriting profit in insurance rates, independent of Yehuda Kahane is Academic Director, The Erhard Center for Higher Studies and Research in Insurance, and is a Senior Lecturer in the Faculty of Management, Tel Aviv University, Israel. The paper was written while he was visiting at the Faculty of Management Studies, University of Toronto. The comments of Roger Blair, Myron J. Gordon, Rafael Lusky, David J. Nye and Marshall Sarnat, on earlier drafts are greatly appreciated. Also acknowledged are the helpful comments of the members of the 1975 Risk Theory Seminar of the American Risk and Insurance Assocation. 'The idea was suggested by Michaelsen and Goshay early in 1967, but a detailed formulation of the problem was published later by Krouse (1970) and Parkin (1970). Still later articles offered some extensions to the model. See, for example, Haugen and Kroncke (1971), Hart and Jaffee (1974), Quirin et al. (1974), Kahane and Nye (1975). See references at the end of this paper for citations of the foregoing articles. The same instructions apply to other footnote references.

Journal of Banking and Finance, Oct 1, 1977

Scandinavian Actuarial Journal, 1987

Abstract Due to the inability to produce an exact figure for the “true” loss, insurance claims (p... more Abstract Due to the inability to produce an exact figure for the “true” loss, insurance claims (paid and reserved) are often stated in terms of round figures. The use of case by case reserving may cause the loss reserves to behave strangely in times of inflation— ...

Geneva Papers on Risk and Insurance-issues and Practice, Apr 1, 1988

Springer eBooks, 1992

This paper examines insurance pricing and its regulation in the context of efficient capital mark... more This paper examines insurance pricing and its regulation in the context of efficient capital markets. Starting with an aggregated model and generalizing results reported recently in the literature about “proper” underwriting profit, the paper turns to disaggregation of the model with m insurance lines. The main result is that no unique set of rates exists that regulators may impose to avoid disturbing market equilibrium. Preliminary empirical evidence presented shows that the “systematic risk” of underwriting profits approaches zero in most lines. Thus an intuitive solution for underwriting profit rates in these lines equal to minus the riskless interest rate, is reasonable.

Journal of Risk and Insurance, Dec 1, 1975

This paper contains an analysis of a portfolio model which simulta-neously optimizes the investme... more This paper contains an analysis of a portfolio model which simulta-neously optimizes the investment and insurance portfolios of the property-liability insurance industry. The mathematical formulation is an extension of earlier approaches in that it permits the direct devel-opment of the ...