Allocation of Surplus for a Multi-Line Insurer

Abstract
Various methods have been advanced for allocating policyholders‘ surplus to lines of insurance. While these methods could be powerful analytical tools, there are practical and theoretical problems that limit their usefulness. These problems are due to both the functions and nature of surplus and the nature of the decision-making processes that might use an allocation method. The author reviews some proposed allocation methods and develops practical considerations for an allocation method. None of the proposed allocation methods considered meet these criteria. These criteria address only the practical concerns about allocation methods, not the theoretical ones. So even proposed allocation methods that meet these standards have theoretical hurdles to overcome. Alternative analytical approaches are proposed as replacements for allocation methods.
Year
1987
Categories
RPP1
Publications
Discussion Paper Program
Authors
Kneuer, Paul J.