Optimal reinsurance under endogenous default and background risk

Astin Bulletin 2026 Open access

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Authors: Zongxia Liang, Zhaojie Ren, Zou Bin
DOI: 10.1017/asb.2026.10085
Cited by: 3
References: 27

Abstract

Abstract This paper studies an optimal reinsurance problem for a utility-maximizing insurer, subject to the reinsurer’s endogenous default and background risk. An endogenous default occurs when the insurer’s contractual indemnity exceeds the reinsurer’s available reserve, which is random due to the background risk. We obtain an analytical solution to the optimal contract for two types of reinsurance contracts, differentiated by whether their indemnity functions depend on the reinsurer’s background risk. The results shed light on the joint effect of the reinsurer’s default and background risk on the insurer’s reinsurance demand.

Fields of Study & Subjects

Insurance and Financial Risk Management Insurance Mortality Demography Risk Management

Publication details

Journal / source
Astin Bulletin
Publisher
Cambridge University Press (CUP)
Volume
56
Issue
2
Pages
537–562
Publication date
20 February 2026
Language
EN