This eBook presents the principles of insurance including risk pooling with a discussion of the relationship between the probability of ruin and safety loading; premium calculation principles that include the equivalence principle with adjustments for safety and expense loadings and the risk sharing mechanisms of deductibles and reinsurance. The relationship of deductibles with the principles of anti-selection and moral hazard is covered. Relevant concepts in probability and statistics and the theory of interest complement the core content.

About the authors

Dr. Abdul Rahman holds graduate degrees in mathematics and financial economics and won the best teacher award by MBA students for 12 consecutive years at the Telfer School of Management. He has published in prestigious academic journals, held university positions as Full Professor and Associate Dean and consulted for global financial institutions in banking, insurance and asset management.

Drs. Dick Harryvan has a graduate degree in business economics. He is an entrepreneurial executive with extensive experience in setting up life and direct retail banking greenfields including ING Direct the world’s largest direct bank which grew to 24 million customers. Being pragmatic, customer centric, focused and keeping things simple are keys to success and are reflected in this Art of Insurance series.

1. Principles of Risk Pooling 
   
   1. Introduction 
      
   2. Pure Risk and Speculative Risk 
      
   3. Concepts in Probability and Statistics 
      
   4. The Principle of Risk Pooling 
      
2. The Theory of Interest and Annuities 
   
   1. Introduction 
      
   2. The Accumulation Function 
      
   3. Effective Rate of Interest 
      
   4. Accumulation Factor for Compounding Frequency (m >1) Per Year 
      
   5. Effective Rate of Discount 
      
   6. Present Value of an Annuity Immediate 
      
   7. Actuarial Present Value (APV) 
      
3. Premium Calculation Principles in Insurance 
   
   1. Introduction 
      
   2. Equivalence Principle 
      
   3. Principle of Mutuality 
      
   4. Expected Value Premium Principle 
      
4. Principles of Risk Sharing 
   
   1. Introduction 
      
   2. Principle of Risk Sharing – Reinsurance 
      
   3. Deductibles and Policy Limits 
      
   4. Anti-selection, Moral Hazard and Deductibles 
      
5. References