Abstract
Insurance Services Office, Inc. (ISO) has adopted a new risk load formula which is to become effective with 1991 advisory increased limits filings. This paper describes the underlying rationale of the new risk load formula. This formula differs from previous ISO formulas in that: (1) it is derived from competitive market assumptions; and (2) it recognizes the risks faced by the insurer in estimating the price of its products; i.e., parameter uncertainty. After the derivation of the formula, the paper will discuss considerations to be made by the insurer when using the formula. These considerations include excess-of-loss reinsurance.
Keywords: Profit Factor, Rate of Return/Risk, Increased Limits/Excess of Loss/Reinsurance, Risk Loads, Profitability
Volume
LXXVIII
Page
163-200
Year
1991
Categories
Actuarial Applications and Methodologies
Ratemaking
Increased Limits
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Traditional Risk Load (Profit Margin);
Business Areas
Reinsurance
Publications
Proceedings of the Casualty Actuarial Society
