Discarding Risk Avoidance and Embracing Risk Optimization: Managing Reinsurance Credit Risk

Property-casualty insurance companies tend to focus on avoiding and controlling their exposure to reinsurance credit risk. This paper advocates switching from this risk avoidance and compliance mentality to a probabilistic and market based view in which one seeks to measure, hedge, exploit, and optimize risk.

Keywords: Reinsurance Credit Risk; Credit Default Swap; CDS.