On the optimality of proportional reinsurance

Abstract

Proportional reinsurance is often thought to be a very simple method of covering the portfolio of an insurer. Theoreticians are not really interested in analysing the optimality properties of these types of reinsurance covers. In this paper, we will use a real-life insurance portfolio in order to compare four proportional structures: quota share reinsurance, variable quota share reinsurance, surplus reinsurance and surplus reinsurance with a table of lines.

Keywords:

• Proportional reinsurance
• Quota share reinsurance
• Variable quota share
• Surplus reinsurance
• Table of lines
• Optimality
• RORAC
• de Finetti
• Individual risk model

Acknowledgments

We would like to thank an anonymous referee for the constructive remarks that led to a better presentation of the paper.