Quote:
Originally Posted by Tacoactuary
I compared the paper in the study kit to Cummins's paper "Asset Pricing Models and Insurance Ratemaking" and in that paper he defined k as premium to liability ratio and s as premium to surplus. He then derives the formula above and it checks. So it seems like he modified the formula he had derived before without paying attention to the fact that his variable definitions had changed. The correct formula for the study kit paper definitions should be

That's essentially what stillgreen derived the return on equity to be in
1363. But my point is that Cummins doesn't say that formula is return on equity, he calls it "required underwriting return". I can't see how to he goes from that formula to return on on premium, but that's where he wants to go.
2012 Q 11 uses this r to calculate the combined ratio as simply 1  r. If this is return on equity this relationship doesn't make sense.