Jurnal Teknik Industri
Vol. 20 No. 1 (2018): June 2018

Optimal Retention for a Quota-Share Reinsurance

Lienda Noviyanti (Universitas Padjadjaran)
Achmad Zanbar Soleh (Statistics Department, Universitas Padjadjaran)
Anna Chadidjah (Statistics Department, Universitas Padjadjaran)
Hasna Afifah Rusyda (Student of Master Degree, Statistics Department, Universitas Padjadjaran)



Article Info

Publish Date
17 Jun 2018

Abstract

The Indonesian Financial Services Authority (OJK) has instructed all insurance providers in Indonesia to apply a mandatory tariff for property insurance. The tariff has to be uniformly applied and the rule of set the maximum and minimum premium rates for protection against losses. Furthermore, the OJK issued the new rule regarding self-retention and domestic reinsurance. Insurance companies are obliged to have and implement self-retention for each risk in accordance with the self-retention limits. Fluctuations of total premium income and claims may lead the insurance company cannot fulfil the obligation to the insured, thus the company needs to conduct reinsurance. Reinsurance helps protect insurers against unforeseen or extraordinary losses by allowing them to spread their risks. Because reinsurer chargers premium to the insurance company, a properly calculated optimal retention would be nearly as high as the insurer financial ability.  This paper is aimed at determining optimal retentions indicated by the risk measure Value at Risk (VaR), Expected Shortfall (ES) and Minimum Variance (MV). Here we use the expectation premium principle which minimizes individual risks based on their quota share reinsurance. Regarding to the data in an insurance property, we use a bivariate lognormal distribution to obtain VaR, ES and MV, and a bivariate exponential distribution to obtain MV. The bivariate distributions are required to derive the conditional probability of the amount of claim occurs given the benefit has occurred.

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Journal Info

Abbrev

ind

Publisher

Subject

Industrial & Manufacturing Engineering

Description

Jurnal Teknik Industri aims to: Promote a comprehensive approach to the application of industrial engineering in industries as well as incorporating viewpoints of different disciplines in industrial engineering. Strengthen academic exchange with other institutions. Encourage scientist, practicing ...