The n-Moment Insurance CAPM

Until recently, the importance of skewness in the rate of return distribution has been largely unrecognized in financial journals. The re-emergence of skewness in financial literature is particularly relevant to catastrophe insurance products where some of the most extremely skewed distributions occur. This paper presents an argument for including a provision in the equilibrium premium to cover the cost of skewness. It also generalizes the insurance CAPM to n moments. This extension permits explicitly determining the impact that skewness and other higher moments have on the needed premium.