Such advantages would include the fact that the insurer will be able to sell nonparticipating insurance
products freely, a move partially restricted while it remains a mutual insurance company under insurance laws, he said.
The stock company, on the other hand, can issue both participating and nonparticipating insurance contracts, and sets premiums on all policies to provide stockholders with a fair expected return.
In other words, policyholders with low levels of risk aversion will tend to associate with participating mutual contracts, while those with high levels of risk aversion will desire partially or nonparticipating insurance.
Section 2 develops a basic model of nonparticipating insurance where stockholders use a multivariate contingent claims framework to set premiums that produce a fair expected return.
If losses can be decomposed into two additive components, one independent among insureds and the other highly correlated, then variable participation contracts can be replicated through the combination of a traditional nonparticipating insurance policy and a futures contract to hedge the systemic risk component.
Whether the optimal contract is achieved via nonparticipating insurance with insureds hedging the [epsilon] risk directly in the futures market or via variable participation contracts with insurer-based securitization is likely to depend upon which method is more cost-effective once transaction costs are introduced.
From the insurer's perspective, the ex ante risk per policyowner under full nonparticipating insurance is (essentially) [xi]EL [equivalent to] [p.
In the first stage, the firm decides to issue either participating or nonparticipating insurance
policies, and it receives some proceeds from the policyholders.
Variable Stock Number of Firms with Participating Insurance in Force 475 Participating Insurance in Force (in thousands) $737,702,461 Nonparticipating Insurance in Force (in thousands) $5,182,287,977 Participating Insurance in Force (percent) 12.
denote the level of expected claims costs where the financing condition obtains for nonparticipating insurance contracts.
2] = 0 for nonparticipating insurance contracts (i.