Optimal Non-Life Reinsurance under Solvency II Regime
22 Pages Posted: 23 Feb 2015 Last revised: 3 Dec 2015
Date Written: September 26, 2015
The optimal reinsurance contract is investigated from the perspective of an insurer who would like to minimise its risk exposure under Solvency II. Under this regulatory framework, the insurer is exposed to the retained risk, reinsurance premium and change in the risk margin requirement as a result of reinsurance. Depending on how the risk margin corresponding to the reserve risk is calculated, two optimal reinsurance problems are formulated. We show that the optimal reinsurance policy can be in the form of two layers. Further, numerical examples illustrate that the optimal two-layer reinsurance contracts are only slightly different under these two methodologies.
Keywords: Optimal Reinsurance, Risk Margin, General Premium Principle, Solvency II, Technical Provision, Value at Risk, Conditional Value at Risk.
JEL Classification: C61, G22
Suggested Citation: Suggested Citation