Measuring Systemic Governmental Reinsurance Risks of Extreme Risk Events

Elroi Hadad (), Tomer Shushi and Rami Yosef
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Elroi Hadad: Department of Industrial Engineering and Management, Sami Shamoon College of Engineering, 56 Bialik St., Beer Sheva 8410802, Israel
Tomer Shushi: Department of Business Administration, Guilford Glazer Faculty of Business and Management, Ben-Gurion University of the Negev, Beer-Sheva 8410501, Israel
Rami Yosef: Department of Business Administration, Guilford Glazer Faculty of Business and Management, Ben-Gurion University of the Negev, Beer-Sheva 8410501, Israel

Risks, 2023, vol. 11, issue 3, 1-11

Abstract: This study presents an easy-to-handle approach to measuring the severity of reinsurance that faces a system of dependent claims, where the reinsurance contracts are of excess loss or proportional loss. The proposed approach is a natural generalization of common reinsurance methodologies providing a conservative framework that deals with the fundamental question of how much money should a government hold to prepare for natural or human-made extreme risk events that the government will cover? Although the ruin theory is commonly used for extreme risk events, we suggest a new risk measure to deal with such events in a new framework based on multivariate risk measures. We analyze the results for the log-elliptical model of dependent claims, which are commonly used in risk analysis, and illustrate our novel risk measure using a Monte Carlo simulation.

Keywords: loss retention; reinsurance policy; reinsurance claim; catastrophic events; risk management; financial simulation (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:11:y:2023:i:3:p:50-:d:1078566

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