ABSTRACT
In stop-loss reinsurance, the reinsurance company will determine the bound of its ability to guarantee the risk, and the remainder of the risk that cannot be guaranteed will be transferred to the reinsurance company, namely the retention. Therefore, optimal retention is needed for the insurance company to handle a bigger loss. We can optimize the Value-at-Risk (VaR) measure to get optimal retention, but it is not easy if there is incomplete information about the total loss that is accepted by the insurance company (e.g. there are only two first moments and support in interval [0, b], where b can have value +∞). Therefore, an approximation that utilizes this incomplete information can be used this is called distribution-free approximation. This research will use a study of literature method. With this approximation, we can see from the result that the obtained optimal retention is dependent on two first moments and the safety loading obligation that is determined by the reinsurance company.
