Pricing and Capital Allocation for Multiline Insurance Firms

28 Pages Posted: 8 Mar 2018

See all articles by Rustam Ibragimov

Rustam Ibragimov

Harvard University - Department of Economics

Dwight M. Jaffee

University of California, Berkeley - Finance Group; National Bureau of Economic Research (NBER)

Johan Walden

University of California, Berkeley - Finance Group

Multiple version iconThere are 2 versions of this paper

Date Written: September 2010

Abstract

We study multiline insurance companies with limited liability. Insurance premiums are determined by no‐arbitrage principles. The results are developed under the realistic assumption that the losses created by insurer default are allocated among policyholders following an ex post, pro rata, sharing rule. In general, the ratio of default costs to expected claims, and thus the ratio of premiums to expected claims, vary across insurance lines. Moreover, capital and related costs are allocated across lines in proportion to each line's share of a digital default option on the insurer. Our results expand and generalize those derived elsewhere in the literature.

Suggested Citation

Ibragimov, Rustam and Jaffee, Dwight M. and Walden, Johan, Pricing and Capital Allocation for Multiline Insurance Firms (September 2010). Journal of Risk and Insurance, Vol. 77, Issue 3, pp. 551-578, 2010, Available at SSRN: https://ssrn.com/abstract=3136116 or http://dx.doi.org/10.1111/j.1539-6975.2010.01353.x

Rustam Ibragimov (Contact Author)

Harvard University - Department of Economics ( email )

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HOME PAGE: http://www.economics.harvard.edu/faculty/ibragimov/ibragimov.html

Dwight M. Jaffee

University of California, Berkeley - Finance Group ( email )

Haas School of Business
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National Bureau of Economic Research (NBER)

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Johan Walden

University of California, Berkeley - Finance Group ( email )

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Berkeley, CA 94720
United States
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HOME PAGE: http://www.haas.berkeley.edu/faculty/walden.html

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