Reinsurer Risk Loads from Marginal Surplus Requirements by Rodney Kreps, May 1990 - Discussion

Rodney Kreps‘s paper contains some useful formulae, and the central idea is an important one. That idea is to determine risk loads by estimating the additional surplus that is required to write an additional contract, and then requiring premium such that the return on additional surplus equals some rate selected by management. The amount of additional surplus is such that writing the contract does not change the probability that the losses from the book of business will cause surplus to fall below zero within the year. The required additional surplus is estimated using the formula