Explore the Optimal Investment-Reinsurance Strategy for Chinese Insurance Companies Under Catastrophe Risks

The Catastrophe Risk Management System is a complex, multi-layered structure that involves various entities, including insurance companies. Insurance industry participation is crucial to the system’s success, but massive compensation claims can lead to heavy financial burdens and even bankruptcy for insurers. To address this challenge, this paper explores an optimal investment and reinsurance strategy for insurers to manage their exposure to catastrophe risks. To achieve this, we develop a surplus process for insurance businesses that incorporates interference items. We then apply the Hamilton-Jacobi-Bellman (HJB) equation to identify the optimal investment and reinsurance strategy that minimizes the risk of financial ruin. Furthermore, we perform a sensitivity analysis on the factors that may affect the optimal investment and reinsurance strategy. Our research provides valuable insights for insurance companies to improve their participation in catastrophe management. With the optimal investment and reinsurance strategy suggested in this study, insurance companies can reduce their risk exposure and increase their investment returns, thereby enhancing their ability to manage catastrophic events.