Effect of reinsurance on the probability of insurance company bankruptcy

Abstract

In insurance theory and practice reinsurance is one of the most complex Business Intelligence decision-making procedures (BI-solutions), that is, operation between two insurance companies, in which one of them transmits and the other receives a part of the risk in exchange for insurance premium payment. Since the objectives of reinsurance decisions inevitably involve risk, so the formulation of relevant tasks should be to reduce this risk to a minimum. Therefore, a common approach to their development on the basis of risk theory and decision theory should include some probability assessment of parameter optimization. In the present article, based on stochastic modelling techniques the technique of reinsurance risk assessment is developed. An optimization criterion on the level of net profit under constraints on the probability of ruin is applied. The solution, which determines the parameters of the optimal strategy.