Theoretical Premiums For Property and Casualty Insurance Coverage - A Risk-Sensitive, Total Return Approach

Chapter 7

The purpose of this paper is to present a conceptual paradigm for deriving the premium for a property or casualty insurance policy. The essential idea is that the premium should be sufficient to generate an adequate total return to the investors who supplied necessary capital to the insurance company that issued the policy. In presenting this approach and some of its implications, the focus will be on the theory and concepts. No real world applications will be demonstrated and no suggestion will be made on how to price any particular coverage. Nor will there be any attempt to debate the merits of this approach versus any other or argue whether it is appropriate for use in any rate hearing or other forum.