nep-ias 2005-06-27 papers

on Insurance Economics

Issue of 2005‒06‒27
one paper chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

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

A Note on a "Square-Root Rule" for Reinsurance

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
URL:	http://d.repec.org/n?u=RePEc:cwl:cwldpp:1521&r=ias

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