Optimal stop-loss reinsurance: a dependence analysis

Year 2016, Volume: 45 Issue: 2, 497 - 519, 01.04.2016

Anna Castañer M. Mercè Claramunt

Abstract

The stop-loss reinsurance is one of the most important reinsurance contracts in the insurance market. From the insurer point of view, it
presents an interesting property: it is optimal if the criterion of minimizing the variance of the cost of the insurer is used. The aim of
the paper is to contribute to the analysis of the stop-loss contract in
one period from the point of view of the insurer and the reinsurer.
Firstly, the influence of the parameters of the reinsurance contract on
the correlation coefficient between the cost of the insurer and the cost
of the reinsurer is studied. Secondly, the optimal stop-loss contract is
obtained if the criterion used is the maximization of the joint survival
probability of the insurer and the reinsurer in one period.

Keywords

Stop-loss premium, Survival probabilities, Reinsurance

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