Reinsurance, ruin and solvency issues: some pitfalls

Arthur Charpentier (1, 2)

1 X-DEP-ECO - Département d'Économie de l'École Polytechnique
2 CREM - Centre de recherche en économie et management

In this paper, we consider optimal reinsurance from an insurer's point of view. Given a (low) ruin probability target, insurers want to find the optimal risk transfer mechanism, i.e. either a proportional or a nonproportional reinsurance treaty. Since it is usually admitted that reinsurance should lower ruin probabilities, it should be easy to derive an efficient Monte Carlo algorithm to link ruin probability and reinsurance parameter. Unfortunately, if it is possible for proportional reinsurance, this is no longer the case in nonproportional reinsurance. Some examples where reinsurance might increase ruin probabilities are given at the end, when claim arrival and claim size are not independent.

Mots clés: Dependence; Reinsurance; Ruin probability; Solvency requirements

Domaines: Economies et finances

Arthur Charpentier. Reinsurance, ruin and solvency issues: some pitfalls. 2010. ⟨hal-00463381⟩