Pricing in Reinsurance Bargaining with Comonotonic Additive Utility Functions

Abstract

Optimal contracts have widely been studied in the literature, yet the bargaining for optimal prices has remained relatively unexplored. Therefore the key objective of this paper is to analyze the price of reinsurance contracts. We use a novel way to model the bargaining powers of the insurer and reinsurer, which allows us to generalize the contracts according to the Nash bargaining solution, indifference pricing, and the equilibrium contracts. We illustrate these pricing functions by means of inverse-S shaped distortion functions of the insurer and the Value-at-Risk for the reinsurer.

Keywords: Cooperative bargaining, reinsurance, contract design, comonotonic additive preferences