Reciprocal Reinsurance Treaties

In this paper we shall study the situation of two insurance companies which are negotiating with the view of concluding a reciprocal reinsurance treaty. We assume that the two companies are under no compulsion to reach an agreement. This means that if the companies conclude a treaty, the treaty must be such that both companies consider themselves better off than without any treaty. We further assume that no third company can break into the negotiations. This means that the two companies either have to come to terms, or be without any reinsurance.