On fair reinsurance premiums; Capital injections in a perturbed risk model

Funding Number

36860-2017

Funding Sponsor

Fonds de recherche du Québec – Nature et technologies

Author's Department

Mathematics & Actuarial Science Department

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https://doi.org/10.1016/j.insmatheco.2018.06.001

Document Type

Research Article

Publication Title

Insurance: Mathematics and Economics

Publication Date

9-1-2018

doi

10.1016/j.insmatheco.2018.06.001

Abstract

© 2018 We consider a risk model where deficits after ruin are covered by a new type of reinsurance contract that provides capital injections. To allow the insurance company's survival after ruin, the reinsurer injects capital only at ruin times caused by jumps larger than a chosen retention level. Otherwise capital must be raised from the shareholders for small deficits. The problem here is to determine adequate reinsurance premiums. It seems fair to base the net reinsurance premium on the discounted expected value of any future capital injections. Inspired by the results of Huzak et al. (2004) and Ben Salah (2014) on successive ruin events, we show that an explicit formula for these reinsurance premiums exists in a setting where aggregate claims are modeled by a subordinator and a Brownian perturbation. Here ruin events are due either to Brownian oscillations or jumps and reinsurance capital injections only apply in the latter case. The results are illustrated explicitly for two specific risk models and in some numerical examples.

First Page

11

Last Page

20

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