Risk-Based Premiums for Insurance Guaranty Funds
AbstractInsurance guaranty funds have been adopted in all states to compensate policyholders for losses resulting from insurance company insolvencies. The guaranty funds charge flat premium rates, usually a percentage of premiums. Flat premiums can induce insurers to adopt h igh-risk strategies, a problem that could be avoided through the use of risk-based premiums. This article develops risk-based premium form ulae for three cases: (1) an ongoing insurer with stochastic assets a nd liabilities; (2) an ongoing insurer also subject to jumps in liabi lities (catastrophes); and (3) a policy cohort, where claims eventual ly run off to zero. Premium estimates are provided and compared with actual guaranty fund assessment rates. Copyright 1988 by American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 43 (1988)
Issue (Month): 4 (September)
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