Application of convex optimization results of de Finetti’s problem for proportional reinsurance : a case study of CAARAMA insurance company in Algiers

Abstract EN

The objective of this research is to find the optimal retention level for a proportional reinsurance treaty based on the results of the convex optimization developed in De Finetti’s model.

The latter makes it possible to determine the level of retention that achieves the expected profit by the insurer while minimizing claims volatility.

The convex functions appear abundantly in economics and finance.

They have remarkable specificities that allow actuaries to minimize financial risks to which some institutions are exposed, especially insurance companies.

Therefore, the use of mathematical tools to manage the various risks is paramount.

In order to remedy the optimization problem, we have combined the probability of failure method with the "De Finetti" model for proportional reinsurance, which proposed a retention optimization process that minimizes claim volatility for a fixed expected profit based on the results of the non-linear optimization.