The Risk Premium Project (RPP) Phase I and II Report

This report summarizes the authors’ review o the actuarial and finance literature on the subject of risk adjustments for discounting liabilities in property-liability insurance. The authors find that the actuarial and financial views of risk priced in the market are converging: systematic, or non-diversifiable, risk still plays a central role in equilibrium pricing, but non-systematic costs arising from market frictions such as taxes and financial risk management also contribute to market valuations. Recent advances in risk assessment and capital allocation techniques are noted. A searchable website with an annotate bibliography of the literature is provided. Several empirical follow-up projects are identified.