Reinsuring the Captive/Specialty Company [Discussion]

Mr. Steeneck has presented the basic principles of applying utility theory in reinsurance pricing in an admirable fashion. His article is straightforward and comprehensive. The footnotes provide an excellent bibliography of the current literature on the subject. The interested reader is particularly directed to the monograph by Leonard Freifelder (Freifelder (1976). These two works complement each other well. Utility theory has been useful to this reviewer as a means of achieving a fresh viewpoint on a problem, rather than as a simplistic solution to the problem of finding numerical results (e.g., rates) that adequately reflect one's risk aversion. If the user avoids the pursuit of simple answers through abstract formulas, he can find much of practical value in the methods discussed by Mr. Steeneck. This is especially true for exponential utility functions. Several of Mr. Steeneck's points merit discussion. This review also provides an opportunity to show two minor results of the reviewer's investigations into utility theory. Keywords: Reinsurance Research - General/NOC