Pricing insurance contracts and determining optimal capital of insurers

In this paper, we extend Kliger and Levikson´s approach for pricing insurance contracts by considering the influence of level of capital held on the price of insurance contracts, and we discuss determination of optimal capital level for an insurer. The results of our analysis show that the optimal number of insured, the maximum value of expected profit increase, optimal premium (price), and the optimal probability of insolvency decrease under the condition of optimal capital level. We also extend the above approach to multi-line cases and determine optimal numbers of policies, prices and capital allocation strategy for multi-line insurance contracts.