Pricing the Catastrophe Exposure in Property Insurance Ratemaking

According to the Statement of Principles Regarding Property and Casualty Insurance Ratemaking, consideration must be given to the impact catastrophes have on loss experience and procedures must be developed to include an allowance for the catastrophe exposure in the insurance rate. This paper updates and expands on the authors’ 1990 Discussion Paper, "Pricing the Catastrophe Exposure in Homeowners Ratemaking." The paper details the calculation of the Homeowners provision for catastrophes at the statewide level. Varying the catastrophe provision below the stateside level, for example by coastal versus inland or east versus west, is addressed and methods are presented to determine a provision for other property lines based on the Homeowners provision. Reinsurance Research