An Analysis of Reinsurance Optimisation in Life Insurance
University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies
University of Bath - School of Management
March 27, 2012
UNSW Australian School of Business Research Paper No. AIPAR 2012/2
This paper considers optimal reinsurance based on an assessment of the reinsurance arrangements for a large life insurer. The objective is to determine the reinsurance structure, based on actual insurer data, using a modified mean-variance criteria that maximises the retained premiums and minimizes the variance of retained claims while keeping the retained risk exposure constant, assuming a given level of risk appetite. The portfolio of life and disability policies use quota-share, surplus and a combination of both quota-share and surplus reinsurance. Alternative reinsurance arrangements are compared using the modified mean-variance criteria to assess the optimal reinsurance strategy. The analysis takes into account recent claims experience as well as actual premiums paid by insured lives and to the reinsurers. Optimal reinsurance cover depends on many factors including retention levels, premiums and the variance of sum insured values (and therefore claims), as a result an insurer should assess the tradeoff between retained premiums and the variance of retained claims based on its own experience and risk appetite.
Number of Pages in PDF File: 20
Keywords: life insurance, optimal reinsurance, proportional reinsurance, mean-variance criteria
JEL Classification: G22, G32, L21working papers series
Date posted: March 26, 2012
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