Reinsurance is insurance for
insurance companies to mitigate risk, and minimize the amount of cash reserves
an insurance company needs to hold. Similar to standard health insurance,
reinsurance has a premium, deductible, and a maximum. Companies send proposals for reinsurance to
my current employment (an insurance company) and my department evaluates these
proposals using mathematics, such as expected values, calculus, and probability
theory. As a check to these calculations we simulate what we think will happen
using resampling techniques in excel. I built a dynamic decision support system
that evaluates and analyzes reinsurance proposals using Monte Carlo
simulations, or resampling, in excel; i.e., created a model that decides the
reinsurance proposal to accept.
The model does the following based
on the inputs registered: (1) It calculates the premium of reinsurance, (2) it
calculates the end payout of the reinsurance company, (3) it calculates the
amount the insurance company is responsible for, (4) it calculates the amount
saved by purchasing reinsurance and (5) provides analysis of the output.
Based off the analysis the user can make the
decision on which reinsurance to purchase, or to not purchase reinsurance at
all.
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