Risk Diversifying Treaty Between Two Companies with Only One in Insurance Business
Article Type
Research Article
Publication Title
Sankhya B
Abstract
We consider an insurance company (Company 1) and another company (Company 2) operating under a risk diversification treaty; we assume that Company 2 does not have any insurance business of its own. Company 2 takes care of a pre-agreed fraction of any possible deficit that Company 1 may face; in return, Company 2 gets a retainer fee at a constant rate. (The situation can also be looked upon as Company 1 acting as a subsidiary of Company 2.) The joint dynamics is modelled in terms of appropriate Skorokhod problem in the quadrant. Corresponding ruin problem is studied, and advantages of the treaty are pointed out. It is shown that ruin probability decays at a faster rate under the treaty. Some numerical results are also presented to project advantages of our formal model.
First Page
183
Last Page
214
DOI
10.1007/s13571-015-0113-3
Publication Date
11-1-2016
Recommended Citation
Raju, I. Venkat Appal and Ramasubramanian, S., "Risk Diversifying Treaty Between Two Companies with Only One in Insurance Business" (2016). Journal Articles. 4416.
https://digitalcommons.isical.ac.in/journal-articles/4416