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The Impact of Enterprise Risk Management Strategies on Capital Allocation in Insurance Companies
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Abstract
A review of the extant literature of enterprise risk management (ERM) and capital
allocation shows that insurers have an incentive to manage capital costs through risk
management. Capital is the most expensive and important input in production for insurance
companies. They deploy capital by holding a large number of financial risk positions that
need to be evaluated. ERM can help insurers to create and improve shareholder value through
better risk-based decision making and capital allocation. The main aim of this study is to
examine risk management practice that is triggered by ERM implementation and use. A
theoretical framework that helps in understanding risk management practice associated with
ERM techniques implementation is developed in this research. Mainly, this framework draws
on the institutional framework of Burns and Scapens (2000) and ‘new’ institutional sociology
theory. This framework can be used as a base to empirically investigate the link between
ERM implementation and risk management practice.