Reinsurance Companies Research Articles

Functional analysis of the insurance system

Introduction. A holistic view of the nature and functions of the insurance system and the possibility of its application in economic processes made it possible to analyze general scientific approaches to understanding the insurance system. The purpose of the paper is to study the main functions of the insurance system and identify the characteristics that shape its content. Results. The insurance system is a complex form of insurance protection in the country, which includes a set of elements that are internally connected, interact with the external environment, and represent a single whole, the properties of which differ from the properties of individual elements. According to the short definition, we consider the insurance system as a set of elements united by internal and external relations, which are a single whole, and within a certain historical period are in a certain relationship with each other. The full definition of the insurance system emphasizes the essence of this concept, taking into account the main features and functions, so in a broad sense, the definition of the insurance system acquires a detailed form and content, by which we propose to understand a set of insurance and reinsurance companies, insurance and reinsurance pools, insurance associations, companies mutual insurance, branches of non-resident insurers and professional risk and loss assessors, which are a single entity and within a certain historical period are in a certain relationship with each other and with the external environment to promote insurance protection. We propose to highlight the main functions of the insurance system: protective, preventive, analytical, incentive, adaptive, social. Conclusion. The analysis shows that the insurance system is a risky combination of entities that provide services for insurance protection of property interests of legal entities and individuals to make a profit or achieve socio-economic results.

Estimation of Reinsurance Risk Value Using the Excess of Loss Method

As with any other business that has a risk of any incident in the future, the insurance business also needs protection against the risks that may arise in the company so that the company does not lose. Therefore, the need for anticipation in organizing any claims submitted by the insurance company to Reinsurance Company so that insurance company may assign any or all of the risks to reinsurance companies. In the method of reinsurance excess-of-loss there is a certain retention limits that allow reinsurance companies bear no claims incurred on insurance companies. The results of this study showed the average occurrence of claims and the risks that may be encountered by Reinsurance Company during the period of insurance. The magnitude of the risk assumed by the reinsurer relies on the model claims aggregation formed from individual claim size distribution models and distribution models the number of claims incurred in the period of insurance. Besides the magnitude of risk was also determined from the retention limit of insurance and reinsurance method used.

Application of parametric insurance in principle‐compliant and innovative ways

AbstractThere has been a rise of innovative parametric insurance solutions in recent years covering a wide range of risks and serving clients from individuals, to businesses, and to governments. These parametric insurance products cover risks that are otherwise uninsured or underinsured, by simplifying product design and reducing transaction costs. This paper offers a comprehensive review of parametric insurance including a classification of the types of contract and an overview of market practices. We outline the benefits and concerns of parametric insurance in comparison with indemnity insurance, and discuss the legal principle and regulatory compliance matters. We then survey the current global market and identify areas where insurance and reinsurance companies can play important roles in offering or supporting parametric insurance operations. Lastly, we offer a case study on a type of parametric insurance designed to cover earthquake risk in California.

Towards an Economic Cyber Loss Index for Parametric Cover Based on IT Security Indicator: A Preliminary Analysis

As cyber events have virtually no geographical limitations and can result in economic losses on a global scale, the assessment of return periods for such economic losses is currently debated among experts. The potential accumulation of consequential insurance losses due to intrusions or viruses is one of the major reasons why the (re-)insurance industry has limited risk appetite for cyber related risks. In order to increase the risk appetite for cyber risk and based on a first batch of data provided by Symantec, the goal of this article is to: Check if IT activity, i.e., the number of virus or intrusions being blocked by Norton on end-user computers could be used as an index for parametric covers that reinsurance companies could propose to their cedants; Look into the correlations of this IT activity across different regions, thereby confirming the absence of geographical limitations for cyber risk, and hence confirming the systemic nature of this risk. This first study on the Symantec dataset shows that a cyber index based on IT activity could be a useful tool to design parametric reinsurance product.

Optimal Reinsurance-Investment Problem under a CEV Model: Stochastic Differential Game Formulation

This paper focuses on a stochastic differential game played between two insurance companies, a big one and a small one. In our model, the basic claim process is assumed to follow a Brownian motion with drift. Both of two insurance companies purchase the reinsurance, respectively. The big company has sufficient asset to invest in the risky asset which is described by the constant elasticity of variance (CEV) model and acquire new business like acting as a reinsurance company of other insurance companies, while the small company can invest in the risk-free asset and purchase reinsurance. The game studied here is zero-sum where there is a single exponential utility. The big company is trying to maximize the expected exponential utility of the terminal wealth to keep its advantage on surplus while simultaneously the small company is trying to minimize the same quantity to reduce its disadvantage. In this paper, we describe the Nash equilibrium of the game and prove a verification theorem for the exponential utility. By solving the corresponding Fleming-Bellman-Isaacs equations, we derive the optimal reinsurance and investment strategies. Furthermore, numerical examples are presented to show our results.

THE EFFECT OF INFORMATION TECHNOLOGY ON THE COOPERATIVE INSURANCE INDUSTRY CASE STUDY: SHIEKAN INSURANCE AND REINSURANCE COMPANY – SUDAN (EMPIRICAL STUDY)

This study aimed to investigate the effect of information technology on the cooperative insurance industry, Shiekan Insurance and Reinsurance Company – Sudan as a case study. The study has achieved in the hypothesis that there is a strong positive relationship between the application of information technology system and the development of management and performance of Shiekan Insurance Company.
 The study found that the majority of dealers in the Sudanese insurance market have weak in dealing with technology. The study concluded that there a clear impact of information technology and achieving a competitive advantage of Shiekan Insurance company. 
 The study recommends the need to move to the use of technology in the insurance sector in Sudan, especially in the Shiekan Insurance Company because it will have a clear impact on the speed of completion of transactions and claims and save costs.
 
 Key Words: Sudan, Reinsurance, Cooperative Insurance, Information Technology, Shiekan,

Optimal stop-loss reinsurance with joint utility constraints

<p style='text-indent:20px;'>We investigate the optimal reinsurance problems in this paper, specifically, the stop-loss strategies that can bring mutual benefit to both the insurance company and the reinsurance company. The utility improvement constraints are adopted by both contracting parties to guarantee that a reinsurance contract will bring higher expected utilities of wealth to the two participants. We also introduce five risk criteria that reflect the interests of both parties. Under each optimality criterion, we obtain explicit expressions of optimal stop-loss retentions and the corresponding optimised value of objective functions. The upper and lower bounds of expected utility increments under the optimal stop-loss retentions are provided. In the numerical example, we analyse the expected utility improvements under the criterion of minimising total Value-at-Risk. Notable increases in the lower bound of total utility increments are observed after adopting the joint utility improvement constraints.

Value Adjustments and Dynamic Hedging of Reinsurance Counterparty Risk

Reinsurance counterparty credit risk (RCCR) is the risk of a loss arising from the fact that a reinsurance company is unable to fulfill her contractual obligations toward the ceding insurer. RCCR is an important risk category for insurance companies which, so far, has been addressed mostly via qualitative approaches. In this paper we therefore study value adjustments and dynamic hedging for RCCR. We propose a novel model that accounts for contagion effects between the default of the reinsurer and the price of the reinsurance contract. We characterize the value adjustment in a reinsurance contract via a partial integro-differential equation and derive the hedging strategies using a quadratic method. The paper closes with a simulation study which shows that dynamic hedging strategies have the potential to significantly reduce RCCR.

Proportional reinsurance for fractional Brownian risk model

This paper investigates the ruin probabilities for a two-dimensional fractional Brownian risk model with a proportional reinsurance scheme. The author focused on the joint and simultaneous ruin probabilities in a finite-time horizon. The risk processes of both insurance and reinsurance companies are composed of a large number of i.i.d. sub-risk processes, representing independent businesses. The asymptotics were derived as the initial capital tends to infinity

Are reinsurance companies overcapitalized?

The cost of insurance and reinsurance tends to follow the classic supply and demand dynamic &#8211; if there is too much supply relative to demand, prices will decline and vice versa. In reinsurance, we tend to measure supply in terms of capital, i.e. the money available to (re)insurers to support the risks that they accept from their policyholders. Demand is defined as the amount of premium a (re)insurer is receiving from their policyholders in exchange for taking on a part or all of one or several risks. Over the years the cost of reinsurance has declined to almost unsustainable levels due to an increase in capital relative to demand1.We believe that falling prices in the reinsurance industry due to the supply and demand argument are somewhat misguided. The cause for the increasing levels of (re)insurer capital over the past few years are mainly driven by the increasing demands of the rating agencies. High financial strength ratings as assigned by the rating agencies have become a necessity to (re)insurers in order to successfully compete in the market and significant amounts of capital, often far in excess of regulatory demands, tend to be required to achieve a high financial strength rating.

The Role of Malaysia Re-takaful Pool in Supporting Re-takaful Activity

This study aims to clarify concepts related to re-takaful activity, re-takaful complexes activity, and highlighting the effective role played by re-takaful complexes in supporting re-takaful activity, and clarifying the importance of re-takaful on the level of takaful companies and the economy as a whole; The study concluded that re-takaful complexes can achieve high rates of re-takaful activity, which encourages the work of Islamic financial institutions, improves the performance of re-takaful companies compared to commercial reinsurance companies, and ensures that Field of risks characterized by catastrophic consequences, which affect economic activity as a whole.

The effect of corporate social disclosure practice on reporting quality

This research is striving to provide an insight into the importance of Corporate Social Responsibility (CSR) for the insurance sector while aiming to examine various corporate social responsibility initiatives undertaken by insurance companies in Croatia. There is a broad range of potential benefits from CSR for insurance companies such as long-term sustainability and profitability, yet only several research studies on CSR practices have thus far been conducted on the insurance sector. Hence, the purpose of this research is to determine the level of CSR reporting for insurance and reinsurance companies in Croatia and its impact on reporting quality. The empirical research is based on online reporting of six aspects of corporate social responsibility to determine Corporate Social Disclosure Index (CSDI). Reporting quality is measured with Disclosure Quality Index of annual report (DQI) which is structured in five phases. This research includes all 24 insurance and reinsurance companies in Croatia and the research findings show that all insurance and reinsurance companies in Croatia publish information at least concerning two aspects of CSR. It was found that they are the most transparent regarding the human resources aspect of CSR activities and the least transparent concerning environmental aspect of CSR activities. The overall level of CSR disclosure for insurance sector in Croatia is quite low, so we can conclude that insurance and reinsurance companies in Croatia do not have a high level of CSR online disclosure. Considering the issue of reporting quality, insurance and reinsurance companies have an average quality of annual report (AR), measured by DQI of annual report. According to research findings, CSR reporting on the Internet is positively associated with DQI which leads to the conclusion that more socially responsible insurance and reinsurance companies provide annual reports of a more superior quality. Business and society interact and exert a mutual influence through their specific objectives and goals. Consequently, the link between business and society is indisputable. Companies, as one of the key segments of a society, can achieve a number of economic benefits, such as superior business results and considerable competitive advantage if they implement CSR and if they provide high quality information through their annual reports. Moreover, society benefits from socially responsible companies as it enjoys better care both for its own well-being and for that of the environment.

Parametric insurance applicability in Zimbabwe: a disaster risk management perspective from selected practicing companies

This study seeks to explore the possibility of adopting parametric insurance to manage disaster risk in Zimbabwe. The background of the research is caused by recurrent natural disasters and the failure of the government to offer disaster relief after such events. The main objective of the research is to come up with the success factors of adopting parametric insurance to manage disaster risk and its effectiveness in African countries. The study population consists of 32 employees from seven reinsurance companies and 5 from a regulatory body. Self-administered questionnaires and interviews were used to collect the data. The study assumes that Zimbabwe does not have sufficient infrastructure to establish parametric insurance, and the lack of financial capacity is another major problem. 61% of respondents confirmed that they were underwriting natural disasters and the remaining 39% were not. The natural disasters that are being covered in insurance market and under which insurance products are used were at 61%. About 39% of the reinsurance companies that are not underwriting natural disasters cited the major reasons why they do not. Most of respondents confirmed that there was no support from the government to underwrite catastrophic risks. 57% of the respondents indicated that it is not possible to adopt parametric insurance, whilst 43% of the respondents agreed that it was practical. Recommendations are made for the government and insurance providers, which include use of catastrophe bonds, government incentives and support, the creation of a clearing house and the involvement of international organizations and developing countries in adopting parametric insurance.

Legal Conditions for Commercial Activity of Mutual Insurance Companies

This article aims at discussing a legal regulation relating to commercial activities of mutual insurance companies which is provided for in the Insurance and Reinsurance Activity Act, Accounting Act and the Regulation of the Minister of Finance on Specific Accounting Principles of Insurance and Reinsurance Companies. It explains the concept of commercial activity of mutual insurance company, as well as the dominant principle of mutuality. A fundamental part of the article is an attempt to interpret Article 111 paragraph 3 of the Insurance and Reinsurance Act, under which premiums from non-members of the mutual insurance company cannot constitute more than 10% (ten percent) of the gross premiums written. According to the authors, the rules for collecting premiums provided for in the Regulation on Specific Accounting Principles of Insurance and Reinsurance Companies, which are thoroughly discussed herein, are of key importance in this respect. In addition, the article also explores the effects of exceeding the limit provided for in Article 111 paragraph 3 of the Insurance and Reinsurance Activity Act, as well as the issue of settling the commercial profits.

Application of Parametric Insurance in Principle/Regulation-Compliant and Innovative Ways

This paper offers a comprehensive review of parametric insurance from a contractual viewpoint. We propose a new categorization of parametric insurance. We then outline the benefits and concerns of parametric insurance in comparison to indemnity-principle based insurance, and discuss the regulatory compliance matters. There has been a rise of innovative parametric insurance solutions in recent years covering a wide range of risks and serving clients from individuals, to businesses, and to governments. We survey the current global market and identify areas where insurance and reinsurance companies can play important roles in offering or supporting parametric insurance operations. Lastly, we offer a case study on a type of parametric insurance designed to cover earthquake risk in California.

Usage of time series models in assessing the value of demand in the insurance market

Insurance can affect savings and investment as insurance and reinsurance companies are among the most important financial institutions in the country's economy. The researcher will analyze, based on the partial auto correlation function and experimenting with several models of auto regression and moving averages, and testing the most appropriate model to describe the quarterly data on the number of polices.

An Approximation of Minimum Initial Capital of Investment Discrete Time Surplus Process with Weibull Distribution in a Reinsurance Company

Catastrophe is a loss that has a low probability of occurring but can lead to high-cost claims. This paper uses the data of fire accidents from a reinsurance company in Thailand for an experiment. Our study is in two parts. First, we approximate the parameters of a Weibull distribution. We compare the parameter estimation using a direct search method with other frequently used methods, such as the least squares method, the maximum likelihood estimation, and the method of moments. The results show that the direct search method approximates the parameters more precisely than other frequently used methods (to four-digit accuracy). Second, we approximate the minimum initial capital (MIC) a reinsurance company has to hold under a given ruin probability (insolvency probability) by using parameters from the first part. Finally, we show MIC with varying the premium rate.

BRICS Opportunities for South African Emergence in the Reinsurance Industry: Challenges and Prospects

Insurance and investment companies usually write out policies that cover potential losses for customers.1 In essence, reinsurance is the management of the risk of insurance companies and investment brokers. The notion of reinsurance has been lacking in both philosophy and methodologies.2 This article assesses the challenges of reinsurance in Africa in relation to South Africa, opportunities presented by the BRICS, an institutional model, and an impact assessment framework for creating both harmony and effectiveness in the reinsurance industry in South Africa. The risk management theory is utilised to give understanding to reinsurance globally. Data is collected by interview, a systematic literature review, and key word-in-search model for data collection. Data collected is analysed using a combination of theme analysis, triangulation and content analysis. Findings include poor performance in the reinsurance industry due to fragile market and ranking, challenges relating to the reimbursement of premium, financial vivacity of the reinsurance companies, limited underwriting capacity of reinsurers, and the lack of a framework. It recommends two frameworks for rejuvenating the reinsurance industry: South Africa’s institutional structure for reinsurance, and the impact and outcomes forum for an effective reinsurance industry for rapid development of the industry.

Modeling energy efficiency insurances and energy performance contracts for a quantitative comparison of risk mitigation potential

Financial risk mitigation via Energy Performance Contracting or Energy Efficiency Insurances may overcome individual barriers for energy efficiency investments. However, while the financial industry, and especially insurance companies, may have compelling reasons to get involved in energy efficiency investments, the research on and real-world applications of risk transfer contracts for private decision-makers are scarce. Thus, this study quantitatively compares the risk mitigation potential of risk transfer contracts based on a comprehensive energy bill savings forecast model comprising stochastic processes for weather, commodity prices, and technological energy efficiency performance. The model is fitted with a unique dataset for German residential buildings. Our findings indicate that risk transfer contracts positively affect individual decision-makers' willingness to invest in energy efficiency. Generally, we find Energy Performance Contracts to be superior in most scenarios when transaction costs are not considered. However, insurance companies may benefit from diversification effects and by ceding risks to global capital markets and reinsurance companies.

Modelling of Insured Losses of Natural Catastrophes Using Block Maxima Model

Catastrophic events have a huge impact on society as a whole. Insurance, or reinsurance is one way of reducing the economic consequences of catastrophic events. By Sigma Swiss Re criteria the event can be noted as a catastrophe when the economic losses, insured claims or casualties associated with an event exceed just one of the thresholds. These thresholds are updated every year. We can observe a growing trend in both the number of catastrophic events as well as in total economic losses and insured losses too. Risk management of insurance and reinsurance companies have to have available relevant information for estimation and adjusting premium to cover these risks. The aim of this article is to present one of the useful method – block maxima method. This method uses information from historical events about insured losses of natural catastrophes and estimates future insured losses. These estimates are very important for actuaries and for risk managers as it is one of the bases for calculating and adjusting premiums of products covering these types of risks.