Profit Regulation in Property-Liability Insurance
Volume: Volume 10, No. 1
Issue: Spring 1979
Pages: pp. 172-191
Authors: Raymond D. Hill
Title: Profit Regulation in Property-Liability Insurance
Abstract: There has been substantial interest in the question of how (and whether) to allow for investment income in setting rates for property-liability insurers. In a sense this interest is premature, since the fair (i.e., competitive) total profit for an insurance firm has not been defined except by unsupported rules of thumb. This article uses the capital asset pricing model to determine the competitive insurance premium and profit rate. Fair profit rates for real lines of insurance are then calculated and compared with actual profit rates. The comparison suggests that rule-of-thumb profit rates used in regulation are above the level that would occur in a competitive insurance market.
JEL Classification
Industry Studies Services Insurance (6356)