Misapplications of Internal Rate of Return Models in Property/Liability Insurance Ratemaking

Topics:
Insurance
Tags:
Casualty Actuarial Society,
Marketing,
Marketing Research,
Misapplication,
Pricing,
Productivity,
Surplus
Source:
Casualty Actuarial Society

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Overview: This paper describes two common misapplications o f internal rate of return (IRR) models in property/liability insurance ratemaking. These misapplications have contributed to the popular belief that the fair premium is heavily dependent on supporting surplus, leading casualty actuaries to devote much time and attention to techniques of surplus allocation. In a correct property/liability pricing application, premium is scarcely impacted by changes in supporting surplus.

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Format: PDF | Size: 718KB | Date: Jul 2002 | Pages: 18

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