Читать книгу Pricing Insurance Risk - Stephen J. Mildenhall - Страница 16

Part II is about portfolio pricing, where the entire portfolio is treated as a single risk. Risk is related to return, suggesting we should apply a risk measure to portfolio losses and use the result to indicate a price. Our principal goal is to determine what price is sufficient for assuming the portfolio risk. Secondary goals include understanding, making inferences about, and calibrating to, market prices.

Insurance is characterized by risk transfer through risk pooling. Figure 1.1 combines all insureds into one portfolio. It shows how the capital and pricing risk measures interact to determine the insurer’s risk pool premium. Part II of the book treats the cash flows on the lower right, between the insurer and the investors.

We are aware that pricing actuaries and underwriters do not set premiums; markets do. However, the aggregate effect of individual company risk-return decisions drives quotes and acceptances in the market. When we talk about setting premiums, we understand it in the framework of evaluating market pricing or offering a quote.

How are the parameters of a pricing model determined? This is a difficult question that must be answered to put theory into practice. We provide examples showing how different parametrization methods perform, link pricing to capital structure, and calibrate an SRM to catastrophe bond pricing.