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Reinsurance Decision Making and Expected Utility

Danny Samson and Howard Thomas
The Journal of Risk and Insurance
Vol. 50, No. 2 (Jun., 1983), pp. 249-264
DOI: 10.2307/252352
Stable URL: http://www.jstor.org/stable/252352
Page Count: 16
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Reinsurance Decision Making and Expected Utility
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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.

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