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Large-Scale Disasters and the Insurance Industry

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Author Info
Walter Kraemer ()
Sebastian Schich ()

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Abstract

We investigate the impact of the 20 largest – in terms of insured losses – man-made or natural disasters on various insurance industry stock indices. We show via an event study that insurance sectors worldwide are quite resilient, in a market–value sense, to unexpected losses to capital: our data provide evidence that equity market investors believe that insurance companies will on average be able to make losses back over the foreseeable future, i.e. that the adverse shocks to equity which have resulted from these catastrophes will be compensated by either an outward shift of the demand curve or an ability to raise premiums, or both.

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File URL: http://www.cesifo.de/DocCIDL/cesifo1_wp2243.pdf
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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2243.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2243

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Related research
Keywords: disaster; insurance industry; event-study;

Other versions of this item:

Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

References listed on IDEAS
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  1. Ploberger, Werner & Kr?mer;, Walter, 1990. "The Local Power of the CUSUM and CUSUM of Squares Tests," Econometric Theory, Cambridge University Press, vol. 6(03), pages 335-347, September. [Downloadable!]
  2. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March. [Downloadable!] (restricted)
  3. Kiviet, Jan F & Kramer, Walter, 1992. "Bias of SDE 2 in the Linear Regression Model with Correlated Errors," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 362-65, May. [Downloadable!] (restricted)
  4. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December. [Downloadable!] (restricted)
  5. Ploberger, Werner & Kramer, Walter, 1992. "The CUSUM Test with OLS Residuals," Econometrica, Econometric Society, vol. 60(2), pages 271-85, March. [Downloadable!] (restricted)
  6. Kenneth A. Froot & Paul G. J. O'Connell, 1999. "The Pricing of U.S. Catastrophe Reinsurance," NBER Chapters, in: The Financing of Catastrophe Risk, pages 195-232 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  7. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March. [Downloadable!] (restricted)
  8. J. David Cummins & Christopher M. Lewis & Richard D. Phillips, 1998. "Pricing Excess-of-loss Reinsurance Contracts Against Catastrophic Loss," Center for Financial Institutions Working Papers 98-09, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
    Other versions:
  9. Chen, Andrew H. & Siems, Thomas F., 2004. "The effects of terrorism on global capital markets," European Journal of Political Economy, Elsevier, vol. 20(2), pages 349-366, June. [Downloadable!] (restricted)
  10. Cummins, J. David & Danzon, Patricia M., 1997. "Price, Financial Quality, and Capital Flows in Insurance Markets," Journal of Financial Intermediation, Elsevier, vol. 6(1), pages 3-38, January. [Downloadable!] (restricted)
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This page was last updated on 2009-12-14.

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