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Structured reinsurance deals with reference to relative market performance

Author

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  • Vincent, Léonard
  • Albrecher, Hansjörg
  • Krvavych, Yuriy

Abstract

In this paper we study a specific type of structured reinsurance deals, for which the indemnification scheme is contingent upon the performance of the cedent, for instance measured in terms of his loss ratio compared to the average loss ratio of the market. We show that this type of deals may be efficiently used to manage risk in the presence of financial distress cost when the cover is provided to a cohort of insurers with positively correlated loss experience. In addition to theoretical results we quantitatively illustrate the potential performance improvement in a numerical example.

Suggested Citation

  • Vincent, Léonard & Albrecher, Hansjörg & Krvavych, Yuriy, 2021. "Structured reinsurance deals with reference to relative market performance," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 125-139.
    • Handle: RePEc:eee:insuma:v:101:y:2021:i:pb:p:125-139
    DOI: 10.1016/j.insmatheco.2021.07.006
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    More about this item

    Keywords

    Structured reinsurance; Contingent reinsurance; Optimal reinsurance; Relative market performance; Financial distress cost;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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