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Managing the ineffective capital structure risk in an insurance company

Vol. 15, Iss. 10, OCTOBER 2019

Received: 19 June 2019

Received in revised form: 8 July 2019

Accepted: 24 July 2019

Available online: 15 October 2019


JEL Classification: G22, G32

Pages: 1857–1872

Tsvetkova L.I. Moscow State Institute of International Relations of Ministry of Foreign Affairs of Russian Federation (MGIMO University), Moscow, Russian Federation

Subject The article investigates how the structure of key financial indicators of the insurer's activity works to manage the investment attractiveness risk of key stakeholders of insurance companies and analyzes the risk assessment.
Objectives The research is aimed to find the leveraged ratio of insurance coverage to insurance premium in line with risks arising from their uncontrolled growth.
Methods The research is based on my own method to assess the appropriate amount of equity and insurance premiums as borrowings so as to calculate the leveraged rate of return on capital with the amount of equity being given. In addition, I applied methods of statistical and graphic analysis.
Results Applying the model proposed by A. Gregory to assess the optimal rate of return on capital, I note the excessive capitalization of the insurance sector and inefficiency of the requirement to increase the share capital of the Russian insurance companies. If the proposed method is used, this will underlie the proportionate requirement to capitalization of average regional insurers.
Conclusions and Relevance The article demonstrates that it is efficient to use structural financial ratios, such as return on capital and ratio of insurance coverage to insurance premiums under contracts so as to control financial sustainability risks and risks of investment attractiveness for investors and insured.

Keywords: business value, share capital, return on capital, insurance premium, obligation


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