The Optimum Portfolio Based on Konno Linear Programming Model (A Case Study on the Iran Insurance Company)

Iran Insurance Company intends to raise its financial credit and render enhanced services to the insured and the public. The need to meet financial obligations arising from the claims requires determination of the optimum deposited claims reserve with banks. Therefore, the present research study aimed at finding the loss ratio (incurred losses to premium), and determining the optimum portfolio of risky and risk-free assets of insurance companies during 1996-2017 by conducting a case study on Iran Insurance Company. Based on the relevant data, the highest loss ratio with 81 percent belonged to 1998-99 and the lowest ratio with 62 percent belonged to 2003-2004. To determine the optimum portfolio of Iran Insurance Company, Konno Mean-Absolute Deviation Portfolio Optimization Model was utilized. According to the Konno Model, the optimum portfolios of risk-free and risky assets are as follows: Short-term banking deposits with 9 percent, long-term banking deposits with 46 percent, bank certificates of deposits (CDs) and participation papers with 9 percent, stocks of companies listed on Tehran Stock Exchange (TSE) with 17 percent, stocks of companies not listed on the TSE with 11 percent, and other assets, i.e. risky assets, including housing loan for employees of insurance companies, offering facilities to the agencies of insurance companies, purchasing immovable assets, and other financial instruments and constructions with 8 percent.