Pareto-optimal reinsurance with default risk and solvency regulation

Abstract This paper studies a Pareto-optimal reinsurance problem when the contract is subject to default of reinsurer. We assume that reinsurer can invest share its wealth in risky asset and occurs reinsurer's end-of-period insufficient cover indemnity. show without solvency regulation, optimal indemnity function excess-of-loss form, regardless investment decision. Under regulation constraint, by assuming decision remains unchanged, characterized element-wisely. Partial results are derived both impacted regulation. Numerical examples provided illustrate implications our sensitivity solution model parameters.