Optimization of parameters of a portfolio reinsurance in non-life insurance

Abstract

This thesis assesses the optimization of reinsurance parameters within a non-life insurance portfolio, focusing specifically on determining the optimal retention levels for two insurance products. The research aims to balance the dual objectives of risk reduction and profitability enhancement, which are crucial for the financial stability and growth of insurance companies. From a broader perspective, it was noted that this trade-off would determine an optimal level of retention which can be applied to both products. To achieve this objective, it was employed two methodologies, utility optimization theory and value at risk. The first one helps determine how much should be kept from what is earned. In contrast, the second one identifies potential maximum loss. It was shown that an increased level of retention may bring about higher profits but at the same time expose the company to significant financial loss calling for a balanced approach in reinsurance.