We consider insurance prices in presence of an incomplete and competitive market. We show that if the insurance price system is internal, sublinear, and consistent with the market, then insurance prices are the maxima of their expected payments with respect to a family of risk neutral probabilities. We also show that under a simple additional assumption, it is possible to decompose the obtained price in net premium plus safety loading.
Insurance premia consistent with the market
Castagnoli, Erio;Maccheroni, Fabio Angelo;Marinacci, Massimo
2002
Abstract
We consider insurance prices in presence of an incomplete and competitive market. We show that if the insurance price system is internal, sublinear, and consistent with the market, then insurance prices are the maxima of their expected payments with respect to a family of risk neutral probabilities. We also show that under a simple additional assumption, it is possible to decompose the obtained price in net premium plus safety loading.
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