Finite-time ruin probabilities under large-claim reinsurance treaties for heavy-tailed claim sizes

DOI10.1017/JPR.2020.8zbMATH Open1444.91188arXiv1905.05527OpenAlexW3043587484MaRDI QIDQ3299447FDOQ3299447

Authors: Bohan Chen, Eleni Vatamidou, Hansjörg Albrecher, Bert Zwart 

Publication date: 22 July 2020

Published in: Journal of Applied Probability (Search for Journal in Brave)

Abstract: We investigate the probability that an insurance portfolio gets ruined within a finite time period under the assumption that the r largest claims are (partly) reinsured. We show that for regularly varying claim sizes the probability of ruin after reinsurance is also regularly varying in terms of the initial capital, and derive an explicit asymptotic expression for the latter. We establish this result by leveraging recent developments on sample-path large deviations for heavy tails. Our results allow, on the asymptotic level, for an explicit comparison between two well-known large-claim reinsurance contracts, namely LCR and ECOMOR. We finally assess the accuracy of the resulting approximations using state-of-the-art rare event simulation techniques.

Full work available at URL: https://arxiv.org/abs/1905.05527

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zbMATH Keywords

heavy tailslarge deviationsfinite-time ruin probabilitiesECOMORlarge-claim reinsurance

Mathematics Subject Classification ID

Actuarial mathematics (91G05) Large deviations (60F10)

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Cited In (3)

• Fourier methods for the claims amounts of largest claims reinsurance covers
• Scale-free graphs with many edges
• Multiple per-claim reinsurance based on maximizing the Lundberg exponent

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