The price of an insurance product is divided in 4 parts, the risk, the actuarial adjustment, administrative and distribution costs, and return of capital.
No, the risk is the probability of a claim times the value of a claim. If you just charge that is mathematically proven that the insurance pool is going to fail. The actuarial adjustment is there to create a surplus that guarantee the survival of the pool.
The price of an insurance product is divided in 4 parts, the risk, the actuarial adjustment, administrative and distribution costs, and return of capital.
Aren’t the risk and the actuarial adjustment the same thing?
No, the risk is the probability of a claim times the value of a claim. If you just charge that is mathematically proven that the insurance pool is going to fail. The actuarial adjustment is there to create a surplus that guarantee the survival of the pool.