OPTIMIZATION OF PROPORTIONAL REINSURANCE CONTRACT UNDER DYNAMIC VALUE-AT-RISK CONSTRAINT

• Main Author: Cloreta, Cintya
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/49584
• Institution: Institut Teknologi Bandung

Reinsurance is able to limit the total severity that is experienced by the insurance company so that the company is safe from financial ruin (insolvent). This thesis will discuss about the optimal proportional reinsurance strategy by insurer’s point of view. The objective is to determine the optimal strategy for reinsurance policy by maximizing the survival probability of the insurance company. To achieve the regulator’s condition and as a tool for risk management, the dynamic risk measures such as; Value-at-Risk (VaR), Conditional Value-at-Risk (CVaR), worst-case CVaR (wcCVaR) are applied as a constraint to the model. These dynamic risk measures are limited by the insurance company’s surplus. By applying dynamic programming technique, the optimal reinsurance strategy is obtained. The effects of other factors such as reinsurance strategy readjustment frequency, premium loading factor, policy limit, and heavytailed claim distributions are also considered to obtain the optimal reinsurance strategy. Some examples will be shown to illustrate the impact of these factors to the proportional reinsurance contract.