The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Insurance Mathematics

  • James C. Hickman
  • Edward W. Frees
Reference work entry


Insurance mathematics is concerned with the valuation of obligations arising from insurance contracts. At contract initiation, valuation is known as premium determination or ratemaking, whereas, for a contract already in force, valuation is known as reserve determination. Updating these values as information is revealed involves important techniques known as experience adjustment. Models of insurance mathematics are based on probability theory and financial economics. These models are calibrated with insurance experience and present values from returns on investments in asset markets.


Benefit premium Calibration Central limit theorems Collective risk theory Compound interest Continuous interest rate Defined benefits Equivalence principle Expected values Health insurance Insurance mathematics Liability Life insurance Mortality Pensions Portfolio theory Present value Probability density function Recursion relationships Risk management Risk theory Selection bias Workers’ compensation insurance 

JEL Classifications

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • James C. Hickman
    • 1
  • Edward W. Frees
    • 1
  1. 1.