Elena Veprauskaite and Michael Sherris
This paper considers optimal reinsurance based on an assessment of the reinsurance arrangements for a large life insurer. The objective is to determine the reinsurance structure, based on actual insurer data, using a modified mean-variance criteria that maximises the retained premiums and minimizes the variance of retained claims while keeping the retained risk exposure constant, assuming a given level of risk appetite.
The portfolio of life and disability policies use quota-share, surplus and a combination of both quota-share and surplus reinsurance. Alternative reinsurance arrangements are compared using the modified mean-variance criteria to assess the optimal reinsurance strategy. The analysis takes into account recent claims experience as well as actual premiums paid by insured lives and to the reinsurers.
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