Total Rate of Return and the Regulation of Insurance Profits, [Review of Paper]

Since that fateful day in 1967 when Irving H. Plotkin burst upon the insurance scene I, the insurance industry has been treated to an awesome swirl of new ideas, concepts and intellectual, as well as operational, challenges. Reactions have ranged from outrage that the hallowed truths of our forefathers should even be questioned, to prompt assimilation because "that's what I've been thinking all along". In between lie the group who struggled to understand, to evaluate, and to reach considered conclusions. Noting that about 50% of the current Fellows of the Casualty Actuarial Society reached their fellowship since 1967, we are passing into the era where we have educated our people as much on "Plotkin theory" as we have on "1921-theory". I hope this is one of the last times that I will have to read about the evils of the 1921 NAIC profit formula. Resisting the temptation to rationalize or explain, I would only ask where economic theory was in 1921 compared to modern views and in the same breath ask where actuarial theory was as well. As the author says "The pre-tax underwriting profit allowance continues as a useful and even necessary regulatory tool for rats review" but let's not either idolize it as the only measure nor deprecate it as a useful measure.