Optimal Non-Life Reinsurance under Solvency II Regime

22 Pages Posted: 23 Feb 2015 Last revised: 3 Dec 2015

See all articles by Alexandru Vali Asimit

Alexandru Vali Asimit

Cass Business School, City, University of London

Yichun Chi

China Institute for Actuarial Science, Central University of Finance and Economics

Junlei Hu

University of Essex

Date Written: September 26, 2015

Abstract

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

Asimit, Alexandru Vali and Chi, Yichun and Hu, Junlei, Optimal Non-Life Reinsurance under Solvency II Regime (September 26, 2015). Insurance: Mathematics and Economics (2015), 65, 227-237. Available at SSRN: https://ssrn.com/abstract=2568316 or http://dx.doi.org/10.2139/ssrn.2568316

Alexandru Vali Asimit (Contact Author)

Cass Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Yichun Chi

China Institute for Actuarial Science, Central University of Finance and Economics ( email )

Beijing, 100081
China

Junlei Hu

University of Essex ( email )

Wivenhoe Park
Colchester, Essex CO4 3SQ
United Kingdom

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