Underwriting Best Shares of Excess Layers

John M. Cozzolino and Peter J. Mikolaj

Journal of Insurance Issues, 1993, vol. 16, issue 2, 41-58

Abstract: The application of utility theory to insurance is incomplete without the inclusion of the structure of risk sharing; to limit the use of utility to accept or reject decisions misses its power to explain the real world of excess insurance and reinsurance. The fine subdivision of risk which is routinely achieved by insurance institutions can be explained on this basis. Practical methods of evaluating and pricing excess layers are given. This model appears to be in broad agreement with the behavior of experienced underwriters and thus can form the decision basis of a reinsurer’s assumption of risk.

Date: 1993
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