Abstract: Based on a two-objective decision-making model,The paper proposes that the convexity is the natural character of residual risk and interpretes that the economic capital allocation is the result of maximizing the profit and minimizing the residual risk.Furthermore based on hierarchical model under the conditions of non-strictly increasing and continuous marginal distribution,The unique capital allocation is the sub-optimal solution.Finally,based on a two-objective decision-making model and under the condition of given capital,the scale of insurance business is optimized.

Key words: residual risk, capital allocation, the scale of business, RAROC