Reinsurance Symposium 

Introduction

par Rémi Moreau

Panorama de la réassurance alternative
par François Bertrand

Les insuffisances de la réassurance traditionnelle
par Abdessatar Ben Hamza

EVALUATED ARTICLES

The Demand for Reinsurance : Theory and Empirical Tests

by James R. Garven and Joan Lamm Tennant

Catastrophe Risk and Insurer Solvency : A diffusion-Jump Analysis

by Michael Powers and Jiandong Ren

COLUMNS

FAITS D’ACTUALITÉ - ASSURANCES ET GESTION DES RISQUES
par Rémi Moreau

CHRONIQUE ACTUARIELLE
par divers collaborateurs du Groupe-conseil Aon

Technical Study

par James Greenhill

Risk Management

by Thomas Holzheu, Kurt Karl, Richard Sbaschning

Grands risques

par Rémi Moreau

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The Demand for Reinsurance: Theory and Empirical Tests
by James R. Garven and Joan Lamm Tennant
Dedicated to the memory of our mentor and friend, Bob Witt

The comparative statics of the model suggest that, other things equal, the demand for reinsurance will be greater, 1) the higher the firm’s leverage, 2) the lower the correlation between the firm’s investment returns and claims costs, 3) for firms which write “longer tail” lines of insurance, and 4) the more the firm concentrates its investments in tax-favored assets. These predictions are tested in an empirical analysis of the reinsurance behavior of U.S. property-liability insurance firms during the period 1980-1987.
Keywords: Reinsurance, valuation, reinsurance demand, contingent claims framework, empirical tests.

Acknowledgments. Earlier versions of this paper benefited substantially from helpful comments offered by a number of colleagues, including Pat Brockett, David Cummins, Neil Doherty, Henri Loubergé, and seminar participants at Baylor University, Louisiana State University, The University of Pennsylvania, the American Risk and Insurance Association, and the International Financial Management Association. The authors gratefully acknowledge the support of the Gus S. Wortham Chair at the University of Texas at Austin in making the A. M. Best data available for use in this study.

Catastrophe Risk and Insurer Solvency: A Diffusion-Jump Analysis
by Michael R. Powers and Jiandong Ren

In recent years, the magnitudes of realized catastrophe (extreme-event) losses have increased dramatically. The effects of increasing catastrophe risks on the insurance industry have been profound. In the current private insurance market, the possibility of insurer default is of great concern to insurers and their investors. However, there is limited actuarial or financial theory for analyzing catastrophe insurance contracts based upon the probability of ruin. In this article, we develop a mixed diffusion and compound Poisson jump model of insurer net worth to reflect the fact that insurers are faced with both non-catastrophe and catastrophe risks. Under the assumption of exponentially distributed catastrophe losses, we derive analytical approximations to the insurer ruin probability. Assuming constant catastrophe loss amounts, we calculate the ruin probability numerically and compare the results with those for exponentially distributed losses.
Keywords: Catastrophe risk, reinsurance, insurer solvency, diffusion-jump analysis.

Panorama de la réassurance alternative
par François Bertrand

Alternative Risk Transfer (ART) is a complement to traditional reinsurance. It includes any financial mechanism used to substitute for traditional risk transfer products offered by reinsurers. Today, there is an increasing use of financial market to manage catastrophic risk or financing commercial or industrial projects. This article first gives a global definition of ART and then presents a panoramic view of ART’s products such as captives, excess of loss PA&MB, risk retention management, modulated protection, loss portfolio transfer, finite risk reinsurance, credit securitization, weather derivatives or credit default swaps.
Keywords: Reinsurance financial mechanisms, alternative risk transfer, financial market.

Les insuffisances de la réassurance traditionnelle
par Abdessatar Ben Hamza

This article describes the difficulties encountered by the reinsurer. The author first reviews the current state of the reinsurance market, with an eye on the way reinsurers have coped with its recent turbulence.  He then discusses the emergence of new products and new markets. We note that markets are setting limits on insurable risks. How to manage these risks? How will the problems arising from the insurance market’s meltdown be solved if traditional reinsurance fails to respond to them?
Keywords: Reinsurer, reinsurance, financial market.