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On Randomized Reinsurance Contracts

Author

Listed:
  • Hansjoerg Albrecher

    (University of Lausanne and Swiss Finance Institute)

  • Arian Cani

    (University of Lausanne)

Abstract

In this paper we discuss the potential of randomizing reinsurance treaties for efficient risk management. While it may be considered counter-intuitive to introduce additional external randomness in the determination of the retention function for a given occurred loss, we indicate why and to what extent randomizing a treaty can be interesting for the insurer. We illustrate the approach with a detailed analysis of the effects of randomizing a stop-loss treaty on the expected profit after reinsurance in the framework of a one-year reinsurance model under regulatory solvency constraints and cost of capital considerations.

Suggested Citation

  • Hansjoerg Albrecher & Arian Cani, 2018. "On Randomized Reinsurance Contracts," Swiss Finance Institute Research Paper Series 18-33, Swiss Finance Institute, revised May 2018.
    • Handle: RePEc:chf:rpseri:rp1833
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    More about this item

    Keywords

    optimal reinsurance; randomization; stop-loss treaties; cost of capital; mean-excess function;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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