TY - JOUR
T1 - Quota-share and stop-loss reinsurance combination based on Value-at-Risk (VaR) optimization
AU - Putri, A. D.
AU - Nurrohmah, S.
AU - Fithriani, I.
N1 - Publisher Copyright:
© 2021 Journal of Physics: Conference Series.
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2021/1/12
Y1 - 2021/1/12
N2 - Every insurance companies have a capacity limit related to the maximum claim that can be borne. Therefore, insurance companies need to reinsure risks to reinsurance companies. Besides of quota-share, types of reinsurance contracts that commonly used is stop-loss. The quota-share reinsurance premium is proportional based on the amount claim that is covered, but not safe against a large claim. While for stop-loss, the reinsurance premium is relatively large but safe for a large claim. So, this paper combines both types of reinsurance to cover the shortcomings with their respective strengths. After being combined, it is necessary to determine the optimal quota-share proportion and stop-loss retention. One criterion of determines optimal proportion and retention is based on Value-at-Risk (VaR) optimization. With the reinsurance premium as a constraint, this optimization problem is solved for each type of reinsurance combination, be it quota-share before stop-loss or stop-loss before quota-share. From each of these types combinations, the result is optimal quota-share proportion and stop-loss retention, so as produce a minimum VaR value from the borne risk by insurance companies. by comparing the results of VaR optimization of these combinations, stop-loss before quota-share is obtained resulting in a more minimum VaR value.
AB - Every insurance companies have a capacity limit related to the maximum claim that can be borne. Therefore, insurance companies need to reinsure risks to reinsurance companies. Besides of quota-share, types of reinsurance contracts that commonly used is stop-loss. The quota-share reinsurance premium is proportional based on the amount claim that is covered, but not safe against a large claim. While for stop-loss, the reinsurance premium is relatively large but safe for a large claim. So, this paper combines both types of reinsurance to cover the shortcomings with their respective strengths. After being combined, it is necessary to determine the optimal quota-share proportion and stop-loss retention. One criterion of determines optimal proportion and retention is based on Value-at-Risk (VaR) optimization. With the reinsurance premium as a constraint, this optimization problem is solved for each type of reinsurance combination, be it quota-share before stop-loss or stop-loss before quota-share. From each of these types combinations, the result is optimal quota-share proportion and stop-loss retention, so as produce a minimum VaR value from the borne risk by insurance companies. by comparing the results of VaR optimization of these combinations, stop-loss before quota-share is obtained resulting in a more minimum VaR value.
KW - Insurer
KW - Proportion
KW - Reinsurance premium
KW - Reinsurer
KW - Retention
UR - http://www.scopus.com/inward/record.url?scp=85100706464&partnerID=8YFLogxK
U2 - 10.1088/1742-6596/1725/1/012097
DO - 10.1088/1742-6596/1725/1/012097
M3 - Conference article
AN - SCOPUS:85100706464
SN - 1742-6588
VL - 1725
JO - Journal of Physics: Conference Series
JF - Journal of Physics: Conference Series
IS - 1
M1 - 012097
T2 - 2nd Basic and Applied Sciences Interdisciplinary Conference 2018, BASIC 2018
Y2 - 3 August 2018 through 4 August 2018
ER -