Extending the Theory to Meet the Practice of Insurance

Abstract

Formal insurance arrangements date back at least to ancient Greece. Marine loans in that era advanced money on a ship or cargo that would be repaid with substantial interest if the voyage succeeded but forfeited if the ship were lost, much like the structure of contemporary catastrophe bonds. The interest rate covered both the cost of capital and the risk of loss. Direct insurance of sea risks, using premiums, probably started around 1300 in Belgium. The first known life insurance policy was written in 1583. By the end of the seventeenth century, sea risk insurance had evolved to a competitive process between underwriters