Insurance guaranty funds have been adopted in all states to compensate policyholders for losses resulting from insurance company insolvencies. The guaranty funds charge flat premium rates, usually a percentage of premiums. Flat premiums can induce insurers to adopt h igh-risk strategies, a problem that could be avoided through the use of risk-based premiums. This article develops risk-based premium form ulae for three cases: (1) an ongoing insurer with stochastic assets a nd liabilities; (2) an ongoing insurer also subject to jumps in liabi lities (catastrophes); and (3) a policy cohort, where claims eventual ly run off to zero. Premium estimates are provided and compared with actual guaranty fund assessment rates. Copyright 1988 by American Finance Association.
