Quantifying the Role of Occurrence Losses in Catastrophe Excess of Loss Reinsurance Pricing
The aim of this paper is to merge order statistics with natural catastrophe reinsurance pricing to develop new theoretical and practical insights relevant to market practice and model development. We present a novel framework to quantify the role that occurrence losses (order statistics) play in pri...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2021-03-01
|
| Series: | Risks |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2227-9091/9/3/52 |
| _version_ | 1797541559678271488 |
|---|---|
| author | Shree Khare Keven Roy |
| author_facet | Shree Khare Keven Roy |
| author_sort | Shree Khare |
| collection | DOAJ |
| description | The aim of this paper is to merge order statistics with natural catastrophe reinsurance pricing to develop new theoretical and practical insights relevant to market practice and model development. We present a novel framework to quantify the role that occurrence losses (order statistics) play in pricing of catastrophe excess of loss (catXL) contracts. Our framework enables one to analytically quantify the contribution of a given occurrence loss to the mean and covariance structure, before and after the application of a catXL contract. We demonstrate the utility of our framework with an application to idealized catastrophe models for a multi-peril and a hurricane-only case. For the multi-peril case, we show precisely how contributions to so-called lower layers are dominated by high frequency perils, whereas higher layers are dominated by low-frequency high severity perils. Our framework enables market practitioners and model developers to assess and understand the impact of altered model assumptions on the role of occurrence losses in catXL pricing. |
| first_indexed | 2024-03-10T13:17:40Z |
| format | Article |
| id | doaj.art-b60f0db28e774d6997acd5cc168c5b06 |
| institution | Directory Open Access Journal |
| issn | 2227-9091 |
| language | English |
| last_indexed | 2024-03-10T13:17:40Z |
| publishDate | 2021-03-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Risks |
| spelling | doaj.art-b60f0db28e774d6997acd5cc168c5b062023-11-21T10:16:09ZengMDPI AGRisks2227-90912021-03-01935210.3390/risks9030052Quantifying the Role of Occurrence Losses in Catastrophe Excess of Loss Reinsurance PricingShree Khare0Keven Roy1Risk Management Solutions, The Minster Building, 21 Mincing Lane, London EC3R 7AG, UKHiscox, 1 Great St. Helen’s, London EC3A 6HX, UKThe aim of this paper is to merge order statistics with natural catastrophe reinsurance pricing to develop new theoretical and practical insights relevant to market practice and model development. We present a novel framework to quantify the role that occurrence losses (order statistics) play in pricing of catastrophe excess of loss (catXL) contracts. Our framework enables one to analytically quantify the contribution of a given occurrence loss to the mean and covariance structure, before and after the application of a catXL contract. We demonstrate the utility of our framework with an application to idealized catastrophe models for a multi-peril and a hurricane-only case. For the multi-peril case, we show precisely how contributions to so-called lower layers are dominated by high frequency perils, whereas higher layers are dominated by low-frequency high severity perils. Our framework enables market practitioners and model developers to assess and understand the impact of altered model assumptions on the role of occurrence losses in catXL pricing.https://www.mdpi.com/2227-9091/9/3/52occurrence lossescatXL pricingorder statisticscatastrophe risk modeling |
| spellingShingle | Shree Khare Keven Roy Quantifying the Role of Occurrence Losses in Catastrophe Excess of Loss Reinsurance Pricing Risks occurrence losses catXL pricing order statistics catastrophe risk modeling |
| title | Quantifying the Role of Occurrence Losses in Catastrophe Excess of Loss Reinsurance Pricing |
| title_full | Quantifying the Role of Occurrence Losses in Catastrophe Excess of Loss Reinsurance Pricing |
| title_fullStr | Quantifying the Role of Occurrence Losses in Catastrophe Excess of Loss Reinsurance Pricing |
| title_full_unstemmed | Quantifying the Role of Occurrence Losses in Catastrophe Excess of Loss Reinsurance Pricing |
| title_short | Quantifying the Role of Occurrence Losses in Catastrophe Excess of Loss Reinsurance Pricing |
| title_sort | quantifying the role of occurrence losses in catastrophe excess of loss reinsurance pricing |
| topic | occurrence losses catXL pricing order statistics catastrophe risk modeling |
| url | https://www.mdpi.com/2227-9091/9/3/52 |
| work_keys_str_mv | AT shreekhare quantifyingtheroleofoccurrencelossesincatastropheexcessoflossreinsurancepricing AT kevenroy quantifyingtheroleofoccurrencelossesincatastropheexcessoflossreinsurancepricing |