Reinsurance Default Risk Modeling from the Perspective of Supervision

Abstract

Reinsurance is an effective mechanism of risk dispersing for insurance company, meanwhile, reinsurance risk also affects the stability of insurer. The model to calculate solvency margin of general insurance company is improved with risk theory, in order to examine the impact of reinsurance default risk on insurer. The core idea is: dividing the survival probability of original insurance company into two parts. The first one is the joint survival probability for both of insurer and reinsurer. The second one is survival probability of insurer when the reinsurer insolvency. In this model, the problem we must solve is how to approximate the joint distribution of aggregate claims for insurer and reinsurer. By analyzing the current reinsurance regulations, some corresponding recommendations are also provided.