Abstract
This paper examines insurance pricing and its regulation in the context of efficient capital markets. Starting with an aggregated model and generalizing results reported recently in the literature about “proper” underwriting profit, the paper turns to disaggregation of the model with m insurance lines. The main result is that no unique set of rates exists that regulators may impose to avoid disturbing market equilibrium. Preliminary empirical evidence presented shows that the “systematic risk” of underwriting profits approaches zero in most lines. Thus an intuitive solution for underwriting profit rates in these lines equal to minus the riskless interest rate, is reasonable.
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© 1992 Springer Science+Business Media New York
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Biger, N., Kahane, Y. (1992). Risk Considerations in Insurance Ratemaking. In: Dionne, G., Harrington, S.E. (eds) Foundations of Insurance Economics. Huebner International Series on Risk, Insurance and Economic Security, vol 14. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-7957-5_27
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DOI: https://doi.org/10.1007/978-94-015-7957-5_27
Publisher Name: Springer, Dordrecht
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