Preprint Article Version 1 This version not peer reviewed

Multiple Attribute Decision Making (MADM) in Proportional-Stop-Loss Reinsurance

Version 1 : Received: 8 July 2017 / Approved: 10 July 2017 / Online: 10 July 2017 (06:30:51 CEST)
Version 2 : Received: 10 July 2017 / Approved: 10 July 2017 / Online: 10 July 2017 (15:42:50 CEST)

A peer-reviewed article of this Preprint also exists.

Wang, S.J.X.; Poh, K.L. Intelligent Decision Support in Proportional–Stop-Loss Reinsurance Using Multiple Attribute Decision-Making (MADM). J. Risk Financial Manag. 2017, 10, 22. Wang, S.J.X.; Poh, K.L. Intelligent Decision Support in Proportional–Stop-Loss Reinsurance Using Multiple Attribute Decision-Making (MADM). J. Risk Financial Manag. 2017, 10, 22.

Journal reference: J. Risk Financial Manag. 2017, 10, 22
DOI: 10.3390/jrfm10040022

Abstract

This article addresses reinsurance decision making process, which involves the insurance company and the reinsurance company, and is negotiated through reinsurance intermediaries. The article proposes a decision flow to model the reinsurance design and selection process. In contrast to existing literature on pure proportional reinsurance or stop-loss reinsurance, this article focuses on the combination into Proportional-Stop-loss reinsurance design which better addresses interest of both parties. In terms of methodology, the significant contribution of the study is to incorporate Multiple Attribute Decision Making (MADM) into modelling the reinsurance selection. The Multi-Objective Decision Making (MODM) model is applied in designing reinsurance alternatives. Then MADM is applied to aid insurance companies in choosing the most appropriate reinsurance contract. To illustrate the feasibility of incorporating intelligent decision supporting system in reinsurance market, the study includes a numerical case study using simulation software @Risk in modeling insurance claims, and programming in MATLAB to realize MADM. Managerial implications could be drawn from the case study results. More specifically, when choosing the most appropriate reinsurance, insurance companies should base their decision on multiple measurements instead of single-criteria decision making models for their decisions to be more robust.

Subject Areas

multi-attribute decision making; reinsurance; proportional reinsurance; non-proportional reinsurance; TOPSIS

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