Pricing in the London Market. Part 2: Practical pricing, non marine market

Document description

Following the paper produced for last year's GISG, in which we set out the basis for pricing, the Working Party decided to concentrate on the actual pricing issues. The original paper dealt with two main issues. The first part dealt with the actual pricing formula which may be used to determine a rate. The second part dealt with the control cycle and stochastic profit testing, and the interaction between the rating process and the profit performance of the business. It is proposed that the second part of the paper be expanded into an Institute paper for the 1987/88 session. The working party decided, for the 1996 GISG conference, to concentrate on developing the first part of the paper, namely the formal calculation of the rates. The original paper dealt with pricing from the formula point of view. This forms an appropriate background to the process. The formula approach is well documented in the paper, and elsewhere in the various references. What tends to be lacking is the application of these formulated approaches to real life situations. The problems with rating in the market is that many of the issues relate to the lack of ideal data, an uncertainty of the rating parameters from the underwriter, a changing market and so on. The use of a static formula approach does not necessarily answer these rating question in dynamic and changing conditions.