On Combining Quota-Share and Excess of Loss

Abstract

AbstractThis paper considers reinsurance retention limits in cases where the cedent has a choice between a pure quota-share treaty, a pure excess of loss treaty or a combination of the two. Our primary aim is to find the combination of retention limits which minimizes the skewness coefficient of the insurer's retained risk subject to constraints on the variance and the expected value of his retained risk. The results are given without specifying precisely how the excess of loss reinsurance premium is calculated. It is also shown that, depending to some extent on the constraint on the variance, the solution to the problem is a pure excess of loss treaty if the excess of loss premium is calculated using the expected value or standard deviation principle but that this need not be true if the variance principle is used.