nep-ias New Economics Papers
on Insurance Economics
Issue of 2005‒06‒27
one paper chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. A Note on a "Square-Root Rule" for Reinsurance By Michael R. Powers; Martin Shubik

  1. By: Michael R. Powers (Temple University); Martin Shubik (Cowles Foundation, Yale University)
    Abstract: In previous work, the current authors derived a mathematical expression for the optimal (or "saturation") number of reinsurers for a given number of primary insurers (see Powers and Shubik, 2001). In the current paper, we show analytically that, for large numbers of primary insurers, this mathematical expression provides a "square-root rule"; i.e., the optimal number of reinsurers in a market is given asymptotically by the square root of the total number of primary insurers. We note further that an analogous “fourth-root rule” applies to markets for retrocession (the reinsurance of reinsurance).
    Keywords: Primary insurance, Reinsurance, Market size, Square-root rule
    JEL: C72 G22
    Date: 2005–06

This nep-ias issue is ©2005 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.