A revisit of the optimal excess-of-loss contract

Ernest Aboagye, Vali Asimit, Tsz Chai Fung, Liang Peng and Qiuqi Wang

European Journal of Operational Research, 2025, vol. 322, issue 1, 341-354

Abstract: It is well-known that Excess-of-Loss reinsurance has more marketability than Stop-Loss reinsurance, though Stop-Loss reinsurance is the most prominent setting discussed in the optimal (re)insurance design literature. We point out that optimal reinsurance policy under Stop-Loss leads to a zero insolvency probability, which motivates our paper. We remedy this peculiar property of the optimal Stop-Loss reinsurance contract by investigating the optimal Excess-of-Loss reinsurance contract instead. We also provide estimators for the optimal Excess-of-Loss and Stop-Loss contracts and investigate their statistical properties under many premium principle assumptions and various risk preferences, which, according to our knowledge, have never been investigated in the literature. Simulated data and real-life data are used to illustrate our main theoretical findings.

Keywords: Risk analysis; Optimal insurance; Nonparametric estimation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:322:y:2025:i:1:p:341-354

DOI: 10.1016/j.ejor.2024.11.027

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