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Working Paper im Journal of Economic Behavior and Organization

Das Working Paper von Lukas Reichel, Hato Schmeiser und Florian Schreiber mit dem Titel «On the Optimal Management of Counterparty Risk in Reinsurance Contracts» ist im Journal of Economic Behavior and Organization zur Publikation angenommen worden. Die Ergebnisse der Arbeit können wie folgt zusammengefasst werden:

We use a normative analysis and consider the optimal reinsurance coverage structure in the presence of counterparty risk. From the perspective of a risk-averse primary insurer, we derive a cost criterion that indicates the optimality of under-, over- and full hedging of the reinsurers’ counterparty risk and show how the hedging preference can define a vertical layering of the reinsurance coverage. We also determine the optimal diversification strategies between two reinsurers that differ in their counterparty risk. Our results provide evidence that the coverage is allocated either to a single reinsurer or to both in the form of a vertical (quota share) and horizontal (excess-of-loss) allocation. Finally, we demonstrate how to optimally combine hedging and diversification.

Please contact Professor Hato Schmeiser for further details.

Author: Elisabeth Heidecke

Date: 31. May 2022