  Reinsurance counterparty credit risk (RCCR) is the risk of a loss arising
from the fact that a reinsurance company is unable to fulfill her contractual
obligations towards the ceding insurer. RCCR is an important risk category for
insurance companies which, so far, has been addressed mostly via qualitative
approaches. In this paper we therefore study value adjustments and dynamic
hedging for RCCR. We propose a novel model that accounts for contagion effects
between the default of the reinsurer and the price of the reinsurance contract.
We characterize the value adjustment in a reinsurance contract via a partial
integro-differential equation (PIDE) and derive the hedging strategies using a
quadratic method. The paper closes with a simulation study which shows that
dynamic hedging strategies have the potential to significantly reduce RCCR.
