Download Fair Rate of Return in Property-Liability Insurance by William B. Fairley (auth.), J. David Cummins, Scott E. PDF

By William B. Fairley (auth.), J. David Cummins, Scott E. Harrington (eds.)

Property-liability assurance premiums for many traces of commercial are regulated in approximately one-half of the states. as a rule, this me ans that charges has to be filed with the country coverage commissioner and authorized sooner than use. the rest of the states have a number of types of aggressive score legislation. those both require that premiums be filed ahead of use yet don't need to be authorized or that premiums needn't be filed in any respect. country ranking legislation are summarized in Rand company (1985). The essential type of coverage fee legislation, previous approval, started within the overdue Nineteen Forties following the V. S. perfect courtroom determination in usa vs. South-Eastern Underwriters organization, 322 V. S. 533 (1944). This used to be an anti belief case concerning one in every of 4 neighborhood associa­ tions of insurance firms, which constituted an assurance cartel. The case struck down an prior determination, Paul vs. Virginia, eight Wall 168 (1869), keeping that the company of coverage used to be no longer interstate trade and therefore that nation rules of assurance didn't violate the trade clause of the V. S. structure. Following South-Eastern Underwriters, the Vnited States Congress handed the McCarran-Ferguson Act, which held that persisted country legislation and taxation of coverage used to be within the public curiosity. The act additionally held that the federal antitrust legislation wouldn't practice to coverage to the level that the company used to be accurately regulated via nation legislations. (See V. S. division of Justice 1977.

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S. Fid. & Guar. Co. Company Table 2-1. a . a . a . ;Nontraded Assets 38 FAIR RATE OF RETURN IN PROPERTY-LIABILITY INSURANCE term, AßNkN/k, which will be positive as long as ßN is positive. Thus, ßL rises with the addition of nontraded assets. Since the systematic risk of the profit rate, ßp , is negatively related to ßL, it falls. Data concerning the nature of nontraded assets are limited. Table 2-1 illustrates the composition of nontraded assets for the Value Une companies with information available in Moody's Bank and Finance Manual.

At any point in time, the value of its underwriting activities equals the expected value of claims to be paid in the future, or the expected value of liabilities. 6) where VE , VA, and VL are the values of equity, assets, and liabilities, respectively; ßA is the beta of assets; and ßL is the beta of liabilities. In order to calculate ßE, a more detailed specification of the return to equity (rE) is needed. 7) where ra is the overall investment return on assets. The beta of liabilities, ßL, reflects the systematic risk of the underwriting profit rate, ßp.

30-32. 5. At the December 1975 hearings on auto insurance rates in Massachusetts, three academic experts in finance testified: Professors Fisher B1ack and Eli Shapiro of the Sloan School of Business of the Massachusetts Institute of Technology and Professor Peter Jones of the Harvard Business Schoo!. All three agreed that a rate-of-return standard was appropriate for determining underwriting margins for use in rate setting and that the target rate of return should be determined by applying the CAPM.

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