In this paper we study the asset-liability management of an insurance company selling “participating contracts”. Participating contracts are typical insurance policies sold worldwide.The payoff of a participating policy is linked to the portfolio or the surplus of the insurance company. We...

While a lot of research concentrates on the respective merits of VaR and TCE, which are the two most classic risk indicators used by financial institutions, little has been written on the equivalence between such indicators. Further, TCE, despite its merits, may not be the most accurate...

We investigate the impact of counterparty risk on contract design in the reinsurance market. We study a multiplicative default risk model, with partial recovery and where the probability of the reinsurer's default depends on the loss incurred by the insurer. The seller is assumed to be...

Insurance activities cannot be solely based on pooling arguments as issued policies share common risk drivers which can be hard to diversify. These risks can be transferred from insurers to reinsurers. We describe the reinsurance market and discuss the demand for reinsurance. Moral hazard issues...

Model-based decisions are highly sensitive to model risk that arises from the inadequacy of the adopted model. This paper reviews the existing literature on model risk assessment and shows how to use the theoretical results to develop a corresponding best practice. Specifically, we develop tools...