Pricing Insurance Risk: Theory and Practice [Kõva köide]

"In order to make insurance a trade at all, the common premium must be sufficient to compensate the common losses, to pay the expense of management, and to afford such a profit as might have been drawn from an equal capital employed in any common trade. Pricing insurance risk is the last mile of underwriting. It determines which risks are accepted onto the balance sheet and makes an insurer's risk appetite operational. It is critical to successful insurance company management. As the last mile, pricing depends on all that has come before. Actuaries and underwriters have analyzed and classified the risk, trended and developed losses, and on-leveled premiums to pick a best-estimate prospective loss cost. Accountants have allocated fixed and variable expenses. Simulation models place the new risk within the context of the company's existing portfolio. The mechanics of all this work is the subject of much of the actuarial education syllabus: experience and exposure rating, predictive analytics, and advanced statistical methods. That is not the subject of this book! All of that prior effort determines the expected loss, and we take it as a given. Pricing adds the risk margin-to afford capital a reasonable return. The risk margin is our subject"--

PRICING INSURANCE RISK

A comprehensive framework for measuring, valuing, and managing risk

Pricing Insurance Risk: Theory and Practice delivers an accessible and authoritative account of how to determine the premium for a portfolio of non-hedgeable insurance risks and how to allocate it fairly to each portfolio component.

The authors synthesize hundreds of academic research papers, bringing to light little-appreciated answers to fundamental questions about the relationships between insurance risk, capital, and premium. They lean on their industry experience throughout to connect the theory to real-world practice, such as assessing the performance of business units, evaluating risk transfer options, and optimizing portfolio mix.

Readers will discover:

• Definitions, classifications, and specifications of risk
• An in-depth treatment of classical risk measures and premium calculation principles
• Properties of risk measures and their visualization
• A logical framework for spectral and coherent risk measures
• How risk measures for capital and pricing are distinct but interact
• Why the cost of capital, not capital itself, should be allocated
• The natural allocation method and how it unifies marginal and risk-adjusted probability approaches
• Applications to reserve risk, reinsurance, asset risk, franchise value, and portfolio optimization

Perfect for actuaries working in the non-life or general insurance and reinsurance sectors, Pricing Insurance Risk: Theory and Practice is also an indispensable resource for banking and finance professionals, as well as risk management professionals seeking insight into measuring the value of their efforts to mitigate, transfer, or bear nonsystematic risk.