Abstract
In insurance pricing, it is convenient to split the total risk load for a policy into the market risk load and the insurer specific risk load, and calculate each separately. The market risk load represents an equilibrium price on a competitive insurance market. A portfolio theory is developed along the line of the classic CAPM, where a policy's market risk load is a function of its systematic risk and the risk load of the entire insurance market. The model is mathematically proved. As a corollary a formula for the risk adjusted discount rate is obtained. Issues about the real world application and testing are also discussed.
Volume
Winter
Page
503 - 530
Year
2006
Categories
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Systematic Risk Models
CAPM
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Systematic Risk Models
Extensions of CAPM
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Covariance Methods
Actuarial Applications and Methodologies
Valuation
Discount Rates
Actuarial Applications and Methodologies
Valuation
Fair Value
Publications
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