Risk Loads for Insurers [Author's Reply]

The actuarial theory of insurance risk loads has followed a meandering course. Actuaries have approached this subject with different perspectives, contributing important but seemingly unrelated insights. Todd Bault’s masterful discussion of “Risk Loads for Insurers” demonstrates the connections between the different approaches, thereby laying a firm foundation for a unified theory. Bault first shows the consistency among the risk load procedures proposed by Rodney Kreps, Stephen Philbrick, and Sholom Feldblum; he concludes with several issues that warrant further analysis. This reply follows a similar format, beginning with the current applications of risk loads and risk margins, and then addressing three of the issues that Bault raises. Keyword: Profit Factor, Rate of Return, Risk