By William B. Fairley (auth.), J. David Cummins, Scott E. Harrington (eds.)
Property-liability assurance premiums for many strains of industrial are regulated in approximately one-half of the states. often, this me ans that charges has to be filed with the kingdom coverage commissioner and authorized ahead of use. the rest of the states have a variety of different types of aggressive score legislation. those both require that premiums be filed ahead of use yet don't need to be authorized or that charges don't need to be filed in any respect. kingdom score legislation are summarized in Rand company (1985). The principal kind of coverage price rules, earlier approval, begun within the past due Nineteen Forties following the V. S. excellent courtroom determination in usa vs. South-Eastern Underwriters organization, 322 V. S. 533 (1944). This was once an anti belief case related to one among 4 neighborhood associa tions of insurance firms, which constituted an coverage cartel. The case struck down an prior choice, Paul vs. Virginia, eight Wall 168 (1869), conserving that the enterprise of coverage used to be now not interstate trade and for that reason that country legislation of coverage 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 persevered nation legislation and taxation of coverage used to be within the public curiosity. The act additionally held that the federal antitrust legislation wouldn't follow to coverage to the level that the enterprise used to be properly regulated via nation legislation. (See V. S. division of Justice 1977.
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Additional info for Fair Rate of Return in Property-Liability Insurance
8) where k is the ratio of reserves to premiums. 10) premlUms This procedure assumes that an assets are either stocks or bonds. This is a convenient assumption, since the betas of actively traded stocks and bonds can be readily estimated. However, as table 2-1 illustrates, a nontrivial proportion of insurance company assets are "nontraded," that is, they are neither stocks nor bonds and are not actively traded on securities markets. This is true both for the Value Line sampIe and for the major insurance writers in Massachusetts.
The beta coefficient per dollar of assets, ßA, is a weighted average of betas for the different securities in company portfolios. Betas for the portfolios were estimated using a subsampie of the Value Line companies for which portfolio composition was available. 5. 8. 21. Hili (1978) used a sampie of six companies, substantially all of whose business was property-liability insurance, which reported the market value of bond holdings and were financed entirely by equity. Data on annual market-valued equity returns and annual market-valued investment returns were available for these firms for the period 1951 to 1965.
An upward bias in official target profit margins provides an opportunity for the industry to earn profits-in excess of those needed (ex ante) to achieve the target rate of return. Whether, in fact, excessive profits are earned is, however, quite a different question, because rate competition, to the degree that it is effective, should force actual profits toward required levels. The historical record of margins some 7 or 8 points below traditional target margins on average must reflect such market pressures.
Fair Rate of Return in Property-Liability Insurance by William B. Fairley (auth.), J. David Cummins, Scott E. Harrington (eds.)