Fairness principles for insurance contracts in the presence of default risk. (30th January 2022)

• Record Type: Journal Article
• Authors: Coculescu, Delia; Delbaen, Freddy
• Is Part Of: Mathematical finance. Volume 32:Number 2(2022)
• Page Start: 595
• Page End: 626
• Publication Date: 2022-01-30
• Subjects: pricing in insurance -- surplus sharing -- coherent risk measures -- commonotonicity -- cooperative games; Business mathematics -- Periodicals; 332
• DOI: 10.1111/mafi.12344
• Languages: English
• ISSNs: 0960-1627

Abstract

Abstract: We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. We suppose that a convex commonotonic premium functional is used to value the aggregated liability of the insurance company. It results from the analysis that when a contract is exposed to the default risk of the insurance company, ex‐ante equilibrium considerations require a certain participation in the benefit of the company to be specified in the contracts. The fair benefit participation of agents appears as an outcome of a game involving the residual risks induced by the default possibility and using fuzzy coalitions.