Risk Loads for Insurers by Sholom Feldblum,(Nov. 1990) - Discussion

Mr. Feldblum has written a very interesting paper on the subject of risk loads. I am happy to see more written on this subject. His paper concentrates on risk load in the context of pricing. Because I believe that the risk load in pricing is inextricably linked to the risk margins in reserving, this paper will also add to the literature on that important subject. However, I believe that Mr. Feldblum‘s enthusiasm to embrace Modern Portfolio Theory Methods has caused him to summarily dismiss other approaches a bit too quickly. It is only a slight overstatement to summarize Mr. Feldblum‘s paper as follows: There are five ways to calculate risk loads. Four are wrong; one is right. I find that many of Mr. Feldblum‘s concerns are quite relevant and, to some degree, compelling. Many of the methodologies currently employed do suffer from incomplete theoretical justification. However, my opinion is that the conclusions are not nearly so black-and-white as Mr. Feldblum would have us believe. I will offer my comments on each of the five methods as defined by Mr. Feldblum.