Optimal Reinsurance Options For Flood Insurance In China

In China, the flood disaster is the worst natural disasters for national economic. In the1990s, floods caused direct economic losses amounted to1.2trillion Yuan. In the1980s PICC separately in Jiangxi Province, Zhejiang Province and the Huai He River Basin carried out flood insurance.30years later, Our country is still no national flood insurance. Along with national economy fast development, people’s safe Consciousness strengthens, the demands for nationwide flood insurance is imminent. For risk diversification, People usually choose reinsurance, but Flood disaster in China, with high frequency, high damage characteristic, therefore for general reinsurance, the original insurance company will still face great risks.so, the author introduces the concept of the mixed reinsurance.Based on the above backgrounds, the author stands in the original insurer’s view, Through Mean-variance criterion, and constructed the mix reinsurance optimal model. Then, adopts Monte-Carlo’s three main steps:1. collects1999-2009year our country flood disaster datas, using fitting software, constructs our country flood disaster model.2. Through the flood disaster model, to simulates1000single flood disaster and the year loss, and assuming that the probability per event is1/1000.3. Through the second step predicted value, establishes each kind of estimators, and calculated mix reinsurance’s optimal parameters.Finally, it can be concluded that if the flood insurance is underwritten by small commercial insurance companies, which retained risk relatively low, and should choose excess of loss per after quota reinsurance portfolio. If the flood insurance is underwriting by the government insurance funds, which underwriting capacity is relatively strong, and should choose stop loss reinsurance after quota reinsurance portfolio.