Constantinescu, Corina, Dias, Alexandra orcid.org/0000-0003-0210-552X, Li, Bo et al. (2 more authors) (2022) Effect of stop-loss reinsurance on the primary insurer solvency. Risks. 193. ISSN 2227-9091
Abstract
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.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Keywords: | Finite-difference method,Reinsurance,Ruin probability,Stop-loss |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > The York Management School |
Depositing User: | Pure (York) |
Date Deposited: | 06 Oct 2022 14:00 |
Last Modified: | 27 Feb 2025 00:07 |
Published Version: | https://doi.org/10.3390/risks10100193 |
Status: | Published |
Refereed: | Yes |
Identification Number: | 10.3390/risks10100193 |
Related URLs: | |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:191754 |