Actuarial Considerations Regarding Risk and Return in Property-Casualty Insurance Pricing
Chapter 1
The appropriate standard for determining profit margins for property and casualty insurance rates has been and is being influenced by lawyers, judges and insurance commissioners as well as investors, actuaries and economists. The contribution from the former groups is one that comes from quite a different perspective emphasizing legal and political considerations rather than financia1 or actuarial ones. Also, the articulation of the appropriate standards when originating from the legal/regulatory community is usually qualitative rather than quantitative. This often results in debates about how a qualitative legal standard should be translated and quantified into a particular profit margin in an insurance rate. The purpose of this chapter is to discuss some of the most prominent legal standards for determining insurance company profit margins and how those standards are evolving and affecting insurance pricing activities today.
