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

Lysa Porth, Jeffrey Pai and Milton Boyd

Journal of Risk & Insurance, 2015, vol. 82, issue 3, 687-713

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.

Date: 2015
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