Fairness principles for insurance contracts in the presence of default risk

Delia Coculescu and Freddy Delbaen

Mathematical Finance, 2022, vol. 32, issue 2, 595-626

Abstract: We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. We suppose that a convex commonotonic premium functional is used to value the aggregated liability of the insurance company. It results from the analysis that when a contract is exposed to the default risk of the insurance company, ex‐ante equilibrium considerations require a certain participation in the benefit of the company to be specified in the contracts. The fair benefit participation of agents appears as an outcome of a game involving the residual risks induced by the default possibility and using fuzzy coalitions.

Date: 2022
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