Abstract
Various methods have been advanced for allocating policyholders' surplus to lines of insurance. While these methods could be powerful analytical tools, there are practical and theoretical problems that limit their usefulness. These problems are due to both the functions and nature of surplus and the nature of the decision-making processes that might use an allocation method. The author reviews some proposed allocation methods and develops practical considerations for an allocation method. None of the proposed allocation methods considered meet these criteria.
These criteria address only the practical concerns about allocation methods, not the theoretical ones. So even proposed allocation methods that meet these standards have theoretical hurdles to overcome. Alternative analytical approaches are proposed as replacements for allocation methods.
Volume
May
Page
191-228
Year
1987
Categories
Actuarial Applications and Methodologies
Capital Management
Capital Allocation
Publications
Casualty Actuarial Society Discussion Paper Program