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A Portfolio Optimization Approach Using Combinatorics With a Genetic Algorithm for Developing a Reinsurance Model

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  • Lysa Porth
  • Jeffrey Pai
  • Milton Boyd

Abstract

type="main" xml:lang="en"> Some insurance firms challenged with a portfolio of high-variance risks face the classic trade-off between risk spreading and risk retaining. Using crop insurance as an example, a new solution to this problem is undertaken to uncover an improved reinsurance design. Joint self-managed reinsurance pooling and private reinsurance are combined in a portfolio approach utilizing combinatorial optimization with a genetic algorithm (Model C), achieving high surplus, high survival probability, and low deficit at ruin. This portfolio model may also be useful for other large natural disaster and weather-related insurance portfolios, and other portfolio applications.

Suggested Citation

  • Lysa Porth & Jeffrey Pai & Milton Boyd, 2015. "A Portfolio Optimization Approach Using Combinatorics With a Genetic Algorithm for Developing a Reinsurance Model," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 82(3), pages 687-713, September.
    • Handle: RePEc:bla:jrinsu:v:82:y:2015:i:3:p:687-713
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    Cited by:

    1. Chengguo Weng & Lysa Porth & Ken Seng Tan & Ryan Samaratunga, 2017. "Modelling the Sustainability of the Canadian Crop Insurance Program: A Reserve Fund Process Under a Public–Private Partnership Model," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(2), pages 226-246, April.
    2. Lysa Porth & Milton Boyd & Jeffrey Pai, 2016. "Reducing Risk Through Pooling and Selective Reinsurance Using Simulated Annealing: An Example from Crop Insurance," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 41(2), pages 163-191, September.
    3. Lysa Porth & Milton Boyd & Jeffrey Pai, 2016. "Reducing Risk Through Pooling and Selective Reinsurance Using Simulated Annealing: An Example from Crop Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 41(2), pages 163-191, September.

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