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Bowley reinsurance with asymmetric information on the insurer's risk preferences

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  • Tim J. Boonen
  • Ka Chun Cheung
  • Yiying Zhang

Abstract

The Bowley solution refers to the optimal pricing density for the reinsurer and optimal ceded loss for the insurer when there is a monopolistic reinsurer. In a sequential game, the reinsurer first sets the pricing kernel, and thereafter the insurer selects the reinsurance contract given the pricing kernel. In this article, we study Bowley solutions under asymmetric information on the insurer's risk preferences where the identity of the insurer is unknown to the reinsurer. By assuming that the insurer adopts a Value-at-Risk measure or a convex distortion risk measure, the optimal pricing kernel for the insurer and the optimal ceded loss function for the reinsurer are determined. Numerical examples are presented to illustrate the results.

Suggested Citation

  • Tim J. Boonen & Ka Chun Cheung & Yiying Zhang, 2021. "Bowley reinsurance with asymmetric information on the insurer's risk preferences," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2021(7), pages 623-644, August.
    • Handle: RePEc:taf:sactxx:v:2021:y:2021:i:7:p:623-644
    DOI: 10.1080/03461238.2020.1867631
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    Cited by:

    1. Gabriela Zeller & Matthias Scherer, 2023. "Risk mitigation services in cyber insurance: optimal contract design and price structure," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(2), pages 502-547, April.

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