Pricing Insurance Risk Course (PIRC)
Purpose
This course explains modern approaches to pricing insurance risk, the process of setting a technical premium, including a target risk margin or profit load. PIR is the last mile of underwriting, after loss costs and expenses have been estimated, and it is critical to insurance company management. A PIR framework embodies an insurer’s risk appetite, determining which risks it accepts onto its balance sheet and how it structures its capital to support those risks.
Risk margins have an out-sized impact on the insurance market despite being low for many lines of business. Personal property may have a single-digit margin, but it incorporates reinsurance priced with margins of 50 percent or more. When the reinsurance markets become stressed—as seen most recently after the events of 2017—the importance of understanding the economic cost of high-risk-margin, high-volatility business becomes clear.
Course Materials
Course Contents
PIRC explores different approaches to loading loss costs for risk and allocating capital and risk margins.
- A. Introduction
- B. Market Assumptions
- C. Historical US Property-Casualty Profitability and Volatility - 2020 Update
- D. Model Specification and Properties
- E. Distortions: Definition, Examples, and Properties
- F. Cat Bonds, Their Pricing, and Its Implications for Pricing Non-Cat Lines
- G. Comparative Pricing Across Different Methods and Lines
- H. Convex Envelopes (coming soon)
- I. Theory in Practice and the Cost of Capital for Insurance Risk
- J. Gradients: Ibrgimov, Jaffee and Walden vs. Aumann-Shapley (coming soon)
- K. Simple Nine Scenario Example
- L. Severe Convective Storm and Hurricane Model Example (coming soon)
- M. More complex exercise proposed for the book (coming soon)