Risk-Adjusted Underwriting Performance Measurement
نویسنده
چکیده
To measure economic profits generated by an insurance policy during its life time, we compare the terminal assets of the policy account with certain breakeven value. Policies with mutil-year loss payments and income tax payments are studied. The breakeven value of terminal assets is given in closed form, and shown to be an increasing function of the claims risk and the asset investment risk. Profits from underwriting and from capital investment are measured separately. Simple equations are found that link the cost of capital to the risk-adjusted loss discount rate. Methods developed in the paper are also useful for fair premium calculation.
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