Abstract
The catastrophe losses caused by Hurricane Andrew and the Northridge Earthquake are leading many actuaries to reconsider their pricing formulas for insurance with a catastrophe exposure. Many of these formulas incorporate the results of computer simulation models for catastrophes. In a related development, many insurers are using a geographic information system to monitor their concentration of business in areas prone to catastrophic losses. While insurers would like to diversify their exposure, the insurance-buying public is not geographically diversified. As a result, insurers must take on greater risk if they are to meet the demand for insurance. This paper develops a risk load formula that uses a computer simulation model for catastrophes and considers geographic concentration as the main source of risk.
Keyword: Risk Load, Profitability, Catastrophe
Volume
LXXXIII
Page
563-600
Year
1996
Categories
Financial and Statistical Methods
Loss Distributions
Extreme Values
Actuarial Applications and Methodologies
Ratemaking
Large Loss and Extreme Event Loading
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Traditional Risk Load (Profit Margin);
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Utility Theory
Financial and Statistical Methods
Risk Measures
Publications
Proceedings of the Casualty Actuarial Society
Prizes
Dorweiler Prize
