Proportional Reinsurance is based on Maximizing the Lundberg Exponent
1Duc Trong Pham, 2Thi Thanh Hang Doan
1University of Labour and Social Affairs, Hanoi, Vietnam
2University of University of Transport Technology, Hanoi, Vietnam
https://doi.org/10.47191/jefms/v6-i11-21
ABSTRACT:
Optimizing risk in the insurance market, particularly in reinsurance, is a major concern due to potential risks in a rapidly developing industry. Providing evaluation criteria for reinsurance models is crucial for insurance companies to enhance business performance. Risk management in reinsurance is of great significance in the insurance business and has been extensively researched. Many different reinsurance models can be used such as the mean criterion, the expectation-variance criterion, the bankruptcy probability function criterion, and the Lundberg exponent optimization criterion. This paper focuses on studying risk optimization in proportional reinsurance by maximizing the Lundberg exponent of the Cramer-Lundberg risk model to minimize the probability of bankruptcy 𝜓(𝑥). At the same time, we provide the algorithm to determine the Lundberg exponent based on the scaling factor, and risk optimization is evaluated accordingly.
KEYWORDS:
Optimizing risk, probability of bankruptcy, proportional reinsurance, reinsurance, Lundberg exponent.
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