We consider the problem of indifference pricing of reinsurance contracts that contain a reinstatement clause. We define the indifference price relative to both a monetary utility function and a risk measure, to take into account both the risk reduction and the relief of capital immobilization provided by reinsurance. We characterize the indifference price as the unique solution to a fixed point equation and we bound the price by two easily computable values, if one has access to losses simulations. We illustrate our results on a European catastrophe insurance portfolio, and we conduct a simulation study for comparison and reproducibility purposes, where we include the case of dependence between claim arrivals, using Hawkes processes.
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The author gratefully acknowledges the support of the insurer Axa who made its data available, and thanks Thierry Cohignac, Guillaume Gorge and Jean-Sébastien Lagacé for fruitful discussions.
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Kazi-Tani, N. Indifference pricing of reinsurance with reinstatements using coherent monetary criteria. Eur. Actuar. J. 11, 161–183 (2021). https://doi.org/10.1007/s13385-020-00257-8
- Insurance premium calculation
- Convex risk measures
- Monetary utility functions
- Reinsurance layers
Mathematics Subject Classification