Optimal proportional reinsurance from the point of view of cedent and reinsurer

Nicolino Ettore D’Ortona and Gabriella Marcarelli

Scandinavian Actuarial Journal, 2017, vol. 2017, issue 4, 366-375

Abstract: In the reinsurance market, the cedent and the reinsurer make their subjective evaluations of the utility and riskiness of the financial operations covered by a treaty by deriving preference rankings of the different kinds of agreements. If both the cedent and the reinsurer evaluate the operation underlying the treaty by means of their utility functions and adopt the criterion based on the comparison between the expected utilities in order to take into account the subjective attitude toward risk, then the indifference prices play a crucial role because they define the preference thresholds of the exchange, thus restricting the range of variability of the reinsurance price. By using an analytical approach, this paper examines the above problem identifying the margins for achieving Pareto-optimal solutions in trading insurance risks.

Date: 2017
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DOI: 10.1080/03461238.2016.1148627

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