There are a few categories of things in Roths' paper I, uh, I just don't get.
You are asked in previous problems to determine the required return for either a stock or a mutual, and they aren't the same, that's not the problem.
Firstly, there is this category for expense and claim inflation? Why do you need to earn an extra "return" for that? Why can't you just embed increased expense and claims costs into your pricing, and let your return stay the same. Then you don't profit, but you aren't losing money on it.
There there's Annual increase in the demand for insurance.'
What does that mean? I don't see how if more people want insurance, that we need to immediately charge a commensurate additionally higher rate. Is the idea here that from supply and demand, that if demand goes up, we should supply at a higher price?
Lastly, and most confusingly what is this annual increase in deflated reserves? (not/after adjusting for changing insurance demand.) What does that even mean, increase in deflated reserves? Is this just another way of saying "writing more business leads to more claims?"
These are strangely worded terms to me. Is anyone aware of easier ways to comprehend these concepts?
Cheers!
Gareth Keenan
You are asked in previous problems to determine the required return for either a stock or a mutual, and they aren't the same, that's not the problem.
Firstly, there is this category for expense and claim inflation? Why do you need to earn an extra "return" for that? Why can't you just embed increased expense and claims costs into your pricing, and let your return stay the same. Then you don't profit, but you aren't losing money on it.
There there's Annual increase in the demand for insurance.'
What does that mean? I don't see how if more people want insurance, that we need to immediately charge a commensurate additionally higher rate. Is the idea here that from supply and demand, that if demand goes up, we should supply at a higher price?
Lastly, and most confusingly what is this annual increase in deflated reserves? (not/after adjusting for changing insurance demand.) What does that even mean, increase in deflated reserves? Is this just another way of saying "writing more business leads to more claims?"
These are strangely worded terms to me. Is anyone aware of easier ways to comprehend these concepts?
Cheers!
Gareth Keenan
Roth, and req'd returns on weird things.
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