The Competitive Market Equilibrium Risk Load Formula for Catastrophe Ratemaking [Discussion]

Mr. Meyers has laid out a framework within the context of his previous contribution, the Competitive Market Equilibrium risk load formula, that reasonably accounts for the increase in the variance of expected losses due to the effects of geographic concentration of an insurer's portfolio. The key idea that the author expresses may seem apparent to most actuaries, but the author's use of statistical notation to establish his point is impressive. In Mr. Meyers' words, "The marginal capital needed to support an insurance contract increases with the concentration of exposure." The author has also addressed the timely need of how to calculate a risk load for catastrophic lines of insurance covering both earthquake and hurricane losses, including a brief summary of computer simulation models that have been offered as a solution to critical issues in pricing for these catastrophic lines. The use of geographic information systems within the overall framework of the risk load calculation is also proposed. Keywords: Risk Load, Profitability, Catastrophe