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Large-Scale Disasters and the Insurance Industry

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  • Walter Kraemer
  • Sebastian Schich

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-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-03/cesifo1_wp2243.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2243.

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

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Keywords: disaster; insurance industry; event-study;

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  1. Anne Gron, 1994. "Capacity Constraints and Cycles in Property-Casualty Insurance Markets," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 110-127, Spring.
  2. Brown, Jeffrey R. & Cummins, J. David & Lewis, Christopher M. & Wei, Ran, 2004. "An empirical analysis of the economic impact of federal terrorism reinsurance," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(5), pages 861-898, July.
  3. 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, Wharton School Center for Financial Institutions, University of Pennsylvania 98-09, Wharton School Center for Financial Institutions, University of Pennsylvania.
  4. Cummins, J. David & Danzon, Patricia M., 1997. "Price, Financial Quality, and Capital Flows in Insurance Markets," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 6(1), pages 3-38, January.
  5. Ploberger, Werner & Kramer, Walter, 1992. "The CUSUM Test with OLS Residuals," Econometrica, Econometric Society, Econometric Society, vol. 60(2), pages 271-85, March.
  6. Ploberger, Werner & Krämer;, Walter, 1990. "The Local Power of the CUSUM and CUSUM of Squares Tests," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 6(03), pages 335-347, September.
  7. 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.
  8. Kenneth A. Froot, 1999. "The Financing of Catastrophe Risk," NBER Books, National Bureau of Economic Research, Inc, number froo99-1, October.
  9. 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.
  10. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, Elsevier, vol. 30(2), pages 253-272, December.
  11. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, Elsevier, vol. 14(1), pages 3-31, March.
  12. Anat Hovav & John D'Arcy, 2003. "The Impact of Denial-of-Service Attack Announcements on the Market Value of Firms," Risk Management and Insurance Review, American Risk and Insurance Association, American Risk and Insurance Association, vol. 6(2), pages 97-121, 09.
  13. Kenneth A. Froot, 1999. "Introduction to "Financing of Catastrophe Risk, The"," NBER Chapters, in: The Financing of Catastrophe Risk, pages 1-22 National Bureau of Economic Research, Inc.
  14. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
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