6.2.Roth

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Exam9
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68281
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6.2.Roth
Updated:
2011-02-22 21:40:25
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Roth
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Roth
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  1. Key points in Roth analysis of Rate of Return
    • It is not theoretically possible to allocate surplus by LOB, so no P/S ratio exists that can be applied to all ins
    • Should reflect all sources of income to capture full chg in surplus
    • Required return for insurers should include provisions for inflation, chg in valuation of liab, chg in demand for ins
    • Stock ins require add'l component of return (dividend)
  2. Fair and Reasonable Rate of Return
    One that is commensurate w/ returns in other enterprises w/ similar risks and that is sufficient to attract capital to the industry
  3. Amount of Surplus needed for next year
    Amt sufficient to retain equilibrium btwn demand and supply of ins. Shoud provide for (1) expense and claims inflation, (2) increase in aggregate reserves, (3) increase in demand for ins

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