This project, in cooperation with MS Amlin, will employ the Economic Simulation Library to investigate the insurance sector. In fact, the insurance market is comprised of many of the foundational components of ESL, such as insurance contracts, insurance markets, and the balance sheets of a variety of players. Furthermore, given the heterogeneity of behaviour witnessed within the insurance sector, there is a natural synergy for attempting to better understand insurance markets through the agent-based perspective of Economic Simulation Library.
In particular, we are focusing on these research questions: Is there increased systemic risk in the insurance industry if all companies use the historically best model for assessing risk? How does diversification to second-best models affect systemic risk and profitability? Is there a generalization of the Kelly criterion for the insurance industry? What are the endogenous causes of insurance cycles?