The Pricing of Multiple Line P&C Insurance Based on the Full Information Underwriting Beta
Date
2009-10
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
HEC Montréal
Abstract
This paper develops a financial model of insurance pricing that is able to price
insurance by line in a multi-line property & casualty insurance company based
on the Full Information Underwriting Beta Methodology. It extends the existing
literature in insurance pricing in that the model is suitable for multi-line pricing
and reflects the systematic risk of different business lines. Based on Canadian
Property & Casualty insurance industry data, the primary empirical findings in
this paper strongly reject the argument in prior studies that underwriting betas of
distinct lines vary in proportion to the length of the period that the premium of
the corresponding line can be kept for investment. The results also show that the
expected underwriting profit margin of liability insurance is the lowest among
three distinct business lines: auto insurance, property insurance, and liability
insurance.
Description
Article deposited after permission was granted by a representative of Revue Assurances et gestion des risques on July 7, 2010
Keywords
Multi-line insurance pricing, Fair underwriting profit margin
Citation
Zhang, L., & Nielson, N.. (2009, October). The Pricing of Multiple Line P&C Insurance Based on the Full Information Underwriting Beta. Assurances et Gestion des Risques, 77(3/4), 237-264.