How Much Reinsurance Do You Really Need? A Case Study.

Today’s reinsurance manager has to balance many diverging interests. Most prominent among these are the risk-return objectives of the company owners and the security requirements of the policyholders. Performance measurement issues and the sheer number of available reinsurance and capital market solutions further complicate the decision-making process. Given the complexity of the problem, it has been our experience that a quantitative approach can help in understanding the risks and the cost of financing them. This leads to more informed decisions. In this article, we guide the reader through the steps of restructuring an existing traditional reinsurance program using quantitative models of the risks. This is done by means of a case study in which concrete insurance lines are analyzed in a sample portfolio.