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Insurance Pricing, Reserving, and Performance Evaluation Under External Constraints on Capitalization and Return on Equity

Eric R. Ulm
The Journal of Risk and Insurance
Vol. 79, No. 2 (June 2012), pp. 541-566
Stable URL: http://www.jstor.org/stable/23250673
Page Count: 26
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Insurance Pricing, Reserving, and Performance Evaluation Under External Constraints on Capitalization and Return on Equity
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Abstract

We derive formulas for calculating the premiums that should be charged on policies in a discounted cash flow model with tax reserves and required assets that are determined by regulation. We also determine the unique division of required assets into "reserves" and "capital" that allows the product profitability to be correctly evaluated. That is, the profit after capital charges is zero if the product achieves the return assumed in pricing. We illustrate the concepts using whole life insurance and guaranteed minimum death benefit examples.

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