Abstract
This paper describes two common misapplications of internal rate of return (IRR) models in property-liability insurance ratemaking. These misapplications have contributed to the popular belief that the fair premium is heavily dependent on supporting surplus, leading casualty actuaries to devote much time and attention to techniques of surplus allocation. In a correct property/ liability pricing application, premium is scarcely impacted by changes in supporting surplus.
Volume
Winter
Page
341-416
Year
2002
Categories
Actuarial Applications and Methodologies
Capital Management
Capital Allocation
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
IRR
Actuarial Applications and Methodologies
Ratemaking
Publications
Casualty Actuarial Society E-Forum
