Profit Margins Using Co-Measures of Risk

Abstract:. Insurance policies cover multiple loss components. Lately, there is a move to determining the premium for a policy by combining the components. This has led to the desire to have profit margins that can be combined. This paper demonstrates that profit margins by component are not additive. Those wishing to introduce rating by peril will need to consider how they will determine profit margins as they combine the underlying loss costs. The Excel worksheet used in the examples will be available on the CAS website.

Keywords. Profit Loads; capital allocation; risk loads