Insurance Pricing and Regulation under Uncertainty: A Chance-Constrained Approach

A financial model of the non-life insurer under uncertainty is developed. The model recognizes the stochastic nature of both the insurer's underwriting and investment income. The total risk faced by the insurer, which includes both underwriting and investment risk, is considered. The impact of...

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Bibliographic Details
Published inThe Journal of risk and insurance Vol. 47; no. 4; pp. 607 - 635
Main Authors McCabe, George M., Witt, Robert C.
Format Journal Article
LanguageEnglish
Published Malvern American Risk and Insurance Association 01.12.1980
Blackwell Publishing Ltd
Subjects
Automobile insurance
Exposure
Financial
Financial management
Insolvency
Insurance claims
Insurance companies
Insurance policies
Insurance premiums
Insurance providers
Insurance rates
Insurance regulation
Insurance settlements
Insurance underwriting
Investment income
Investment risk
Liability insurance
Pricing
Profits
Regulation
Risk
Stochastic models
Uncertainty
Underwriting
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Summary:A financial model of the non-life insurer under uncertainty is developed. The model recognizes the stochastic nature of both the insurer's underwriting and investment income. The total risk faced by the insurer, which includes both underwriting and investment risk, is considered. The impact of regulatory constraints on the insurer's profits also is analyzed. Moreover, the costs of regulation imposed on the insurer are assessed in a non-linear, chance-constrained, programming framework. In general, the model shows that economic tradeoffs must be considered when management or regulatory decisions are made because of the numerous interrelationships among variables in the model and in the real world.
ISSN:0022-4367
1539-6975
DOI:10.2307/252287