Abstract
Required surplus and return on equity (ROE) are of concern to the owners of insurance entities. A comparison of actual to required surplus provides a measure of the security afforded to policyholders. Calculation of ROE for individual segments of an operation can be used to evaluate relative performance. In either case, surplus must be correctly allocated to each business segment. Historically these allocations have been based on rules of thumb relating premium to surplus.
This paper presents a model for determining the appropriate premium to surplus ratio for a business segment, given the insurer's risk appetite. A regression based procedure for parameter estimation is outlined. The estimation procedure is illustrated using sample data.
Volume
May, Vol 2
Page
657-678
Year
1992
Categories
Actuarial Applications and Methodologies
Enterprise Risk Management
Processes
Analyzing/Quantifying Risks
Actuarial Applications and Methodologies
Capital Management
Capital Allocation
Actuarial Applications and Methodologies
Capital Management
Leverage
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Probability of Ruin
Financial and Statistical Methods
Statistical Models and Methods
Regression
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
ROE
Publications
Casualty Actuarial Society Discussion Paper Program
