Reinsurance Decision Making and Expected Utility

Publication Type

Journal Article

Publication Date

6-1983

Abstract

Utility theory is developed and applied in this article as a choice criterion for decisions concerning which types and extents of reinsurances are most appropriate for an insurer. Using an undimensional utility function, reinsurance options are evaluated by calculating an upper bound premium (i.e., the maximum that the insurer should consider paying for a particular reinsurance agreement), which can be compared with market rates. Comparisons between reinsurance options can thus be accurately made as a function of the probability density function of the original loss, the modifications made by various ceding agreements, and the risk attitude of the insurer.

Keywords

Insurance, utility theory

Discipline

Business | Insurance | Management Sciences and Quantitative Methods

Research Areas

Strategy and Organisation

Publication

Journal of Risk and Insurance

Volume

50

Issue

2

First Page

249

Last Page

264

ISSN

0022-4367

Identifier

10.2307/252352

Publisher

American Risk and Insurance Association

Additional URL

https://doi.org/10.2307/252352

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