Abstract
IF A COMPETITIVE MARKET is in equilibrium, values must be additive in the sense that the value of a basket of goods must be equal to the sum of the values of the commodities it contains. Similarly, the value of a portfolio of securities must be equal to the sum of the values of the constituent securities. Applied to insurance, this principle means that the total premium should be the same whether a complex risk is insured under one single or several separate insurance contracts, provided, of course, that administrative expenses and transaction costs are ignored. One implication is that there must be some restrictions on the methods used to compute premiums if additivity and market equilibrium are to be preserved. With this starting point, we shall derive some well known results and indicate how they can be generalized.
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