•We model bargaining between an insurer and a reinsurer.•We introduce uncertainty about jump risk.•We price reinsurance with the relative safety loading of reinsurance.•We examine robust proportional ...and excess-loss reinsurance contracts.•We analyze the insurer’s selection for re insurance products.
We investigate robust reinsurance contracts in two reinsurance modes, namely proportional reinsurance and excess-loss reinsurance, in a continuous-time principal–agent framework. Insurance claims follow the classic Cramer–Lundberg process. The reinsurer (principal) is concerned about potential ambiguity in the claim intensity, but the insurer (agent) is not. The reinsurer designs a robust reinsurance contract that maximizes the penalty-based multiple-priors utility of terminal wealth, subject to the insurer’s incentive compatibility constraint. We derive the analytical expressions of the robust reinsurance contacts. Our results show that the reinsurer dynamically decreases the reinsurance price, which makes the demand for reinsurance increase over time. However, the reinsurer’s ambiguity aversion increases the price of reinsurance, which decreases demand. Moreover, the price of excess-loss reinsurance is greater than that of proportional reinsurance. Finally, when the insurer’s risk aversion is low or the reinsurer’s risk aversion is high, both the insurer and the reinsurer prefer the proportional reinsurance contract.
Catastrophe Risk Financing in Developing Countries provides a detailed analysis of the imperfections and inefficiencies that impede the emergence of competitive catastrophe risk markets in developing ...countries. The book demonstrates how donors and international financial institutions can assist governments in middle- and low-income countries in promoting effective and affordable catastrophe risk financing solutions.The authors present guiding principles on how and when governments, with assistance from donors and international financial institutions, should intervene in catastrophe insurance markets. They also identify key activities to be undertaken by donors and institutions that would allow middle- and low-income countries to develop competitive and cost-effective catastrophe risk financing strategies at both the macro (government) and micro (household) levels. These principles and activities are expected to inform good practices and ensure desirable results in catastrophe insurance projects.Catastrophe Risk Financing in Developing Countries offers valuable advice and guidelines to policy makers and insurance practitioners involved in the development of catastrophe insurance programs in developing countries.
We study blockchain adoption in insurance–reinsurance markets. We consider operational costs related to claim verification and record-keeping. Traditionally, the majority of these costs scale ...linearly with the volume of claims. Instead, with a consortium blockchain these costs, per firm, become independent of claim volume and decrease with the adoption rate since they are distributed. In a consortium of insurance firms, we quantify how the equilibrium adoption decisions depend on the reinsurance contract characteristics, the risk aversion of insurance companies, the distributions of their potential losses and the blockchain cost structure. Under the optimal contract, the reinsurance firm internalizes the benefits of adoption on other insurance firms, thereby acting as a central planner. We then characterize the adoption gap between decentralized (Nash) and centralized blockchain consortia.
•Adoption occurs when the blockchain cost is below a risk adjusted operational cost.•This cost depends on contract characteristics, risk aversion and loss distribution.•The reinsurer provides the necessary coordination to incentivize wider adoption.
"In excess of loss reinsurance, the reinsurer covers the amount of a loss exceeding the policy’s deductible but not piercing its cover limit. Accordingly, a policy’s quantitative scope of cover is ...significantly affected by the parties’ agreement of a deductible and a cover limit. Yet, the examination of whether a loss has exceeded deductible or cover limit necessitates an educated understanding of what constitutes one loss. In so-called aggregation clauses, the parties to (re-)insurance contracts regularly provide that multiple individual losses are to be added together for presenting one loss to the reinsurer when they arise from the same event, occurrence, catastrophe, cause or accident. Aggregation mechanisms are one of the core instruments for structuring reinsurance contracts. This book systematically examines each element of an aggregation mechanism, tracing the inconsistent usage of aggregation language in the markets and scrutinizing the tests developed by courts and arbitral tribunals. In doing so, it seeks to support insurers, reinsurers, brokers and lawyers in drafting aggregation clauses and in settling claims. Focusing on an analysis of primary sources, particularly judicial decisions, the book interprets each judicial decision to describe a system of inter-related rules, collating, organising and describing the English law of aggregation as applied by the courts and arbitral tribunals. It further draws a comparison between the English position and the corresponding rules in the Principles of Reinsurance Contract Law (PRICL)."
We study optimal reinsurance in the framework of stochastic Stackelberg differential game, in which an insurer and a reinsurer are the two players, and more specifically are considered as the ...follower and the leader of the Stackelberg game, respectively. An optimal reinsurance policy is determined by the Stackelberg equilibrium of the game, consisting of an optimal reinsurance strategy chosen by the insurer and an optimal reinsurance premium strategy by the reinsurer. Both the insurer and the reinsurer aim to maximize their respective mean–variance cost functionals. To overcome the time-inconsistency issue in the game, we formulate the optimization problem of each player as an embedded game and solve it via a corresponding extended Hamilton–Jacobi–Bellman equation. It is found that the Stackelberg equilibrium can be achieved by the pair of a variance reinsurance premium principle and a proportional reinsurance treaty, or that of an expected value reinsurance premium principle and an excess-of-loss reinsurance treaty. Moreover, the former optimal reinsurance policy is determined by a unique, model-free Stackelberg equilibrium; the latter one, though exists, may be non-unique and model-dependent, and depend on the tail behavior of the claim-size distribution to be more specific. Our numerical analysis provides further support for necessity of integrating the insurer and the reinsurer into a unified framework. In this regard, the stochastic Stackelberg differential reinsurance game proposed in this paper is a good candidate to achieve this goal.
In this paper, a class of reinsurance contracting problems is examined under a continuous-time principal–agent framework with mean-variance criteria, where a reinsurer and an insurer are assigned the ...roles of the principal and the agent, respectively. Both parties can manage their insurance risk by investing in a financial portfolio comprising a risk-free asset and a risky asset. It has been assumed that both the insurer and the reinsurer are concerned about model uncertainty and that they aim to find a robust reinsurance contract and robust investment strategies by maximizing their respective mean-variance cost functionals taking sets of probability scenarios into account. To articulate the time-inconsistency issue attributed to the mean-variance optimization criteria, the optimization procedure of each decision-maker has been formulated as a non-cooperative game and discussed by using an extended HJB equation, which is consistent with the extant work on time-consistent control. Moreover, explicit expressions for the robust reinsurance contract, the robust investment strategies and the value functions of the insurer and reinsurer have been obtained and presented. The numerical results and their economic interpretations are then discussed.
Atendiendo la evolución jurídica y negocial del reaseguro, las vicisitudes judiciales que ha enfrentado recientemente el gremio reasegurador en Colombia y la creciente colocación de programas de ...seguros mediante el esquema del fronting, resulta oportuno examinar la posibilidad que tiene el reasegurador de subrogarse en la posición de la compañía aseguradora (cedente), con el fin de ejercer sus derechos litigiosos en contra del responsable del siniestro, una vez el asegurado original es efectivamente indemnizado. El presente escrito, procura auscultar y esclarecer los posibles caminos para ejercer una eventual subrogación por parte del reasegurador bajo la legislación colombiana, tratándose de un tema que ha sido parcialmente explorado por la doctrina nacional y que apunta a convertirse en una herramienta de vital repercusión para el reasegurador en la etapa post-siniestral, es decir, una vez reconocida la indemnización derivada del contrato de reaseguro a la cedente (compañía de seguros) o directamente al asegurado original.
In most organizational fields, multiple and sometimes conflicting institutional logics coexist, a phenomenon termed institutional complexity. Its behavioral implications have only recently been ...studied. This study analyzes how sustained institutional complexity through organizational design influences individual dysfunctional behavior. It is posited that organizations sustaining institutional complexity through their organizational designs provide structural assurance that may legitimize behavior that deviates from norms. These claims are tested through a field study in the accounting industry across three countries. It reveals that the perceived presence of institutional complexity can stimulate perceived dysfunctional behaviors. By considering the interplay of institutional complexity and individual dysfunctional behavior, the research unveils unintended consequences of sustained institutional complexity, offering a fresh perspective on sustained institutional complexity.
Insurance and reinsurance companies have to calculate solvency capital requirements in order to ensure that they can meet their future obligations to policyholders and beneficiaries. The solvency ...capital requirement is a risk management tool essential when extreme catastrophic events happen, resulting in high number of possibly interdependent claims. In this thesis, we study the problem of aggregating the risks coming from several insurance lines of business and analyse the effect of reinsurance in the level of risk. Our starting point is to use a Hierarchical Risk Aggregation method, which was initially based on 2-dimensional elliptical copulas. We use copulas from the Archimedean family and a mixture of different copulas. The results show that a mixture of copulas can provide a better fit to the data than the plain (single) copulas and consequently avoid overestimation or underestimation of the capital requirement of an insurance company. We also investigate the significance of reinsurance in reducing the insurance company's business risk and its effect on diversification. The results show that reinsurance does not always reduce the level of risk but can reduce the effect of diversification for insurance companies with multiple business lines. To extend the literature on modelling multivariate distributions, we investigate the dependence structure of multiple insurance business lines risks using C-vine copulas. In particular, we use bivariate copulas, and aggregate the insurance risks. We employ three C-vine models such as mixed C-vine, C-vine Gaussian and C-vine t-copula to develop a new capital requirement model for insurance companies. Our findings suggest that the mixed C-vine copula is the best model which allows a variety of dependence structure estimated by its respective copula families.
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