How I understand it now is that risk premium is a subset of the overall credit spread:
Credit spread: an extra return you ask for from a person you are lending money to for their expected defaults + an extra return you ask from a person you are lending money to for additional credit problems above their expected defaults.
Risk premium: extra return you ask for from a person you are lending money to to account for their credit problems above their expected defaults.
Is this consistent with what these concepts are trying to get at? I found the 'Fair Value of Insurance Contracts' reading pretty complicated especially when it started talking about the risk premium associated with receiving premium from policyholders. What does risk premium represent when talking about receiving premiums from insureds?
Credit spread: an extra return you ask for from a person you are lending money to for their expected defaults + an extra return you ask from a person you are lending money to for additional credit problems above their expected defaults.
Risk premium: extra return you ask for from a person you are lending money to to account for their credit problems above their expected defaults.
Is this consistent with what these concepts are trying to get at? I found the 'Fair Value of Insurance Contracts' reading pretty complicated especially when it started talking about the risk premium associated with receiving premium from policyholders. What does risk premium represent when talking about receiving premiums from insureds?
Risk Premium vs. Credit Spread
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