Читать книгу Pricing Insurance Risk - Stephen J. Mildenhall - Страница 12

Pricing insurance risk is the last mile of underwriting. It determines which risks are accepted onto the balance sheet and makes an insurer’s risk appetite operational. It is critical to successful insurance company management.

As the last mile, pricing depends on all that has come before. Actuaries and underwriters have analyzed and classified the risk, trended and developed losses, and on-leveled premiums to pick a best-estimate prospective loss cost. Accountants have allocated fixed and variable expenses. Simulation models place the new risk within the context of the company’s existing portfolio. The mechanics of all this work is the subject of much of the actuarial education syllabus: experience and exposure rating, predictive analytics, and advanced statistical methods. That is not the subject of this book! All of that prior effort determines the expected loss, and we take it as a given. Pricing adds the risk margin—to afford capital a reasonable return. The risk margin is our subject.

Since risk margins are often small, how is it they deserve a whole book? Because risk considerations have an outsized market impact. True, personal property may only earn a single-digit margin. But that business often relies on reinsurance priced with margins of 50% or more. When the reinsurance markets fail or become stressed—as seen after Hurricane Andrew and the Northridge earthquake, for example—the tail of high-risk-margin business wags the dog of much larger property lines. Risk margins are critical to the functioning of the insurance market. Even for lines with thin margins, the collective risk and return decisions of firms have profound macro impacts over time such as the secular increases in homeowners pricing over the last twenty years.

We emphasize insurance risk. We do not discuss credit risk nor operational risk. We have only a little to say about asset risk and nothing about interest rate risk. Market risk, underwriting cycles, competitive threats? Sorry, all off-topic. We are focused on the risk of losses arising from insurance contracts. We lean heavily towards a property-casualty perspective and, within that, towards catastrophe risk; however, the principles we lay out apply to any insurance risk. This is not a book about Enterprise Risk Management (ERM) although we do have a few words to say about optimization and portfolio management.

The goal of this book is to demonstrate how to

1 compute a reservation price (technical premium, required premium) for the portfolio, and

2 allocate it to portfolio units (policies, lines of business, etc.) in a defensible manner

starting from a model of the insured risks. These pricing techniques have powerful applications. They allow us to assess the performance of different units, evaluate needed reinsurance, and optimize overall strategy.