This paper examines stop-loss reinsurance threshold for a pool of dependent risk, which is motivated by the fact that insurance penetration in Africa is far below the world’s average rate. The study applies convex combination of quantile measures to produce a linear function with both insurer and reinsurer cost functions which are then minimized to arrive at an optimal retention threshold. Results indicate that threshold is determined by the proportion of risk-sharing, and that the model performs better even with small sample sizes based on Monte Carlo simulation. Finally, it is noted that sustainability of decentralized insurance requires modelling of dependence structure for realistic pricing and reserving methods.
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