Optimal reinsurance contracts under the reinsurer's risk constraint with VaR risk measures

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Abstract

Most researchers in insurance field have not been considering the reinsurer's risk. Theoretically, the quantity of reinsurer's risk is not limited. However, in the real-world insurance industry, reinsurer always put a limit on coverage, otherwise the reinsurer will experience a heavy financial burden when the insurer bears an unexpected large loss. In this paper, we review the optimal reinsurance problem under VaR risk measures framework when the limitation for reinsurer's risk exposure are limited by a constant. By analyzing the VaR of the insurer's total risk exposure, optimality can be fulfilled and end up in obtaining the expected reinsurance policy. Through the study, it is reveal that the stop-loss reinsurance with a policy limit is constantly the optimal reinsurance policy under VaR risk measures. Determination of optimal quantity of ceded risk depends on the confidence level, the safety loading and the limitation of the constant. A numerical analysis on company claims data is carried out in order to find the optimal ceded loss function.

Original languageEnglish
Article number012023
JournalJournal of Physics: Conference Series
Volume1218
Issue number1
DOIs
Publication statusPublished - 31 May 2019
Event3rd International Conference on Mathematics; Pure, Applied and Computation, ICoMPAC 2018 - Surabaya, Indonesia
Duration: 20 Oct 2018 → …

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