Pricing and Capital Allocation for Multiline Insurance Firms
We study multiline insurance companies with limited liability. Insurance premiums are determined by no-arbitrage principles. The results are developed under the realistic assumption that the losses created by insurer default are allocated among policyholders following an "ex post", pro rata, sharing rule. In general, the ratio of default costs to expected claims, and thus the ratio of premiums to expected claims, vary across insurance lines. Moreover, capital and related costs are allocated across lines in proportion to each line's share of a digital default option on the insurer. Our results expand and generalize those derived elsewhere in the literature. Copyright (c) The Journal of Risk and Insurance, 2010.
Year of publication: |
2010
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Authors: | Ibragimov, Rustam ; Jaffee, Dwight ; Walden, Johan |
Published in: |
Journal of Risk & Insurance. - American Risk and Insurance Association - ARIA, ISSN 0022-4367. - Vol. 77.2010, 3, p. 551-578
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Publisher: |
American Risk and Insurance Association - ARIA |
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