Fair Rate of Return in Property-Liability InsuranceJ. David Cummins, Scott E. Harrington Property-liability insurance rates for most lines of business are regulated in about one-half of the states. In most cases, this me ans that rates must be filed with the state insurance commissioner and approved prior to use. The remainder of the states have various forms of competitive rating laws. These either require that rates be filed prior to use but need not be approved or that rates need not be filed at all. State rating laws are summarized in Rand Corporation (1985). The predominant form of insurance rate regulation, prior approval, began in the late 1940s following the V. S. Supreme Court decision in United States vs. South-Eastern Underwriters Association, 322 V. S. 533 (1944). This was an anti trust case involving one of four regional associa tions of insurance companies, which constituted an insurance cartel. The case struck down an earlier decision, Paul vs. Virginia, 8 Wall 168 (1869), holding that the business of insurance was not interstate commerce and hence that state regulation of insurance did not violate the commerce clause of the V. S. Constitution. Following South-Eastern Underwriters, the Vnited States Congress passed the McCarran-Ferguson Act, which held that continued state regulation and taxation of insurance was in the public interest. The act also held that the federal antitrust laws would not apply to insurance to the extent that the business was adequately regulated by state law. (See V. S. Department of Justice 1977. |
Contents
A Discounted Cash Flow Approach to PropertyLiability Insurance Rate | 55 |
Insurance in an Equilibrium AssetPricing Model | 79 |
The Determination of Fair Profits for the PropertyLiability Insurance Firm | 101 |
Copyright | |
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Fair Rate of Return in Property-Liability Insurance J. David Cummins,Scott E. Harrington Limited preview - 2013 |
Fair Rate of Return in Property-Liability Insurance J. David Cummins,Scott E. Harrington No preview available - 2014 |
Fair Rate of Return in Property-Liability Insurance J David Cummins,Scott E Harrington No preview available - 2014 |
Common terms and phrases
assumed assumption auto automobile insurance automobile rate average beta beta coefficient bodily injury bonds calculated CAPM claims compensation competitive coverages Derrig discount rate discounted cash flow Division of Insurance earned equal equation equilibrium expected losses expected return expected value fair premium Fairley model Fairley's GEICO individual risks inflation insurance companies insurance firm insurance policies insurance rates insurance shares investment balance liabilities line of insurance losses and expenses Massachusetts Myers-Cohn model nontraded assets parameter values percent policyholders present value profit rate property damage property-liability insurance rate filings rate of return rate regulation ratemaking Rating Bureau ratio real assets regulatory returns to equity risk of underwriting risk premium risk-free interest rate risk-free rate shareholders surplus systematic risk tax rate tax shield Treasury bill underwriting income underwriting losses underwriting profit margin underwriting profit provision Value Line sample variables yields