Underwriting Best Shares of Excess Layers

The application of utility theory to insurance is incomplete without the inclusion of the structure of risk sharing; to limit the use of utility to accept or reject decisions misses its power to explain the real world of excess insurance and reinsurance. The fine subdivision of risk which is routinely achieved bv insurance institutions can be explained on this basis. Practica1 methods of evaluating and pricing excess layers are given. This model appears to be in broad agreement with the behavior of experienced underwriters and thus can form the decision basis of a reinsurer’s assumption of risk. Dr. John M. Cozzolino is Director of The Underwriting Education Institute and Associate Professor of Management at Pace University. He is former director of The Ameritan Risk and Insurance Association and an Academic Correspondent of the Casualty Actuarial Society. He currently serves on the Publications Committee of the Society of Insurance Research. Dr. Peter J. Mikolaj is Associate Professor of Insurance at Indiana State Unit:ïrsity. He is a Trustee of Gamma lota Sigma, the national professional insurance fraternity and an Academic Correspondent of the Casualty Actuarial Society. Prior to teaching he spent severa1 years in the insurance industry. As an officer, he represented his company on state and national industry committees.