On Randomized Reinsurance Contracts

Hansjoerg Albrecher and Arian Cani
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Hansjoerg Albrecher: University of Lausanne and Swiss Finance Institute
Arian Cani: University of Lausanne

No 18-33, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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.

Keywords: optimal reinsurance; randomization; stop-loss treaties; cost of capital; mean-excess function (search for similar items in EconPapers)
JEL-codes: C61 G22 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2018-05, Revised 2018-05
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1833

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