On Randomized Reinsurance Contracts

31 Pages Posted: 8 May 2018 Last revised: 15 May 2018

See all articles by Hansjoerg Albrecher

Hansjoerg Albrecher

University of Lausanne; Swiss Finance Institute

Arian Cani

University of Lausanne

Date Written: April 26, 2018

Abstract

In this paper we discuss the potential of randomizing reinsurance treaties for efficient risk management. While it may be considered counter-intuitive to introduce additional external randomness in the determination of the retention function for a given occurred loss, we indicate why and to what extent randomizing a treaty can be interesting for the insurer. We illustrate the approach with a detailed analysis of the effects of randomizing a stop-loss treaty on the expected pro t after reinsurance in the framework of a one-year reinsurance model under regulatory solvency constraints and cost of capital considerations.

Keywords: optimal reinsurance, randomization, stop-loss treaties, cost of capital, mean-excess function

JEL Classification: G22, C61

Suggested Citation

Albrecher, Hansjoerg and Cani, Arian, On Randomized Reinsurance Contracts (April 26, 2018). Swiss Finance Institute Research Paper No. 18-33. Available at SSRN: https://ssrn.com/abstract=3169190 or http://dx.doi.org/10.2139/ssrn.3169190

Hansjoerg Albrecher (Contact Author)

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Arian Cani

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

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