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On randomized reinsurance contracts

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  • Albrecher, Hansjörg
  • Cani, Arian

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

  • Albrecher, Hansjörg & Cani, Arian, 2019. "On randomized reinsurance contracts," Insurance: Mathematics and Economics, Elsevier, vol. 84(C), pages 67-78.
    • Handle: RePEc:eee:insuma:v:84:y:2019:i:c:p:67-78
    DOI: 10.1016/j.insmatheco.2018.11.004
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    References listed on IDEAS

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    2. Manuel Guerra & Alexandra B. Moura, 2020. "Reinsurance of multiple risks with generic dependence structures," Papers 2009.12274, arXiv.org, revised Jun 2021.
    3. M. Guerra & A. B. de Moura, 2020. "Reinsurance of multiple risks with generic dependence structures," Working Papers REM 2020/0149, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    4. Guerra, M. & de Moura, A.B., 2021. "Reinsurance of multiple risks with generic dependence structures," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 547-571.
    5. Vincent, Léonard & Albrecher, Hansjörg & Krvavych, Yuriy, 2021. "Structured reinsurance deals with reference to relative market performance," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 125-139.

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