Constantinescu, Corina ORCID: 0000-0002-5219-3022, Dias, Alexandra, Li, Bo, Šiška, David and Wang, Simon
(2022)
Effect of Stop-Loss Reinsurance on Primary Insurer Solvency.
Risks, 10 (10).
p. 193.
Abstract
<jats:p>Stop-loss reinsurance is a risk management tool that allows an insurance company to transfer part of their risk to a reinsurance company. Ruin probabilities allow us to measure the effect of stop-loss reinsurance on the solvency of the primary insurer. They further permit the calculation of the economic capital, or the required initial capital to hold, corresponding to the 99.5% value-at-risk of its surplus. Specifically, we show that under a stop-loss contract, the ruin probability for the primary insurer, for both a finite- and infinite-time horizon, can be obtained from the finite-time ruin probability when no reinsurance is bought. We develop a finite-difference method for solving the (partial integro-differential) equation satisfied by the finite-time ruin probability with no reinsurance, leading to numerical approximations of the ruin probabilities under a stop-loss reinsurance contract. Using the method developed here, we discuss the interplay between ruin probability, reinsurance retention level and initial capital.</jats:p>
Item Type: | Article |
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Uncontrolled Keywords: | finite-difference method, reinsurance, ruin probability, stop-loss |
Depositing User: | Symplectic Admin |
Date Deposited: | 12 Oct 2022 08:15 |
Last Modified: | 17 Mar 2024 18:01 |
DOI: | 10.3390/risks10100193 |
Open Access URL: | https://doi.org/10.3390/risks10100193 |
Related URLs: | |
URI: | https://livrepository.liverpool.ac.uk/id/eprint/3165404 |