Risk Considerations in Insurance Rate Making

This paper examines insurance pricing and its regulation in the con-
text of efficient capital markets. Starting with an aggregated model and
generalizing results reported recently in the literature about "proper"
underwriting profit, the paper turns to disaggregation of the model
with m insurance lines. The main result is that no unique set of rates
exists that regulators may impose to avoid disturbing market equilib-
rium. Preliminary empirical evidence presented shows that the "sys-
tematic risk" of underwriting profits approaches zero in most lines. Thus
an intuitive solution for underwriting profit rates in these lines equal to
minus the riskless interest rate, is reasonable