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Is it true that insurers benefit from a catastrophic event? Market reactions to the 1995 Hanshin-Awaji earthquake

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  • Nobuyoshi Yamori
  • Takeshi Kobayashi

Abstract

Previous studies, investigating how the market in general viewed the impact of a big earthquake (e.g., the 1989 Loma Prieta earthquake in the San Francisco Bay Area) on insurance firm values, found a positive reaction of insurers' stock prices. This "gaining from loss" may be caused by the subsequent increased demand for insurance coverage. This paper investigates the impact of the 1995 Hanshin-Awaji earthquake on Japanese insurers' value. Contrary to the results for U.S. earthquakes, we find significant negative stock price reactions. Furthermore, our results demonstrate that Japanese stock markets are considerably efficient in assessing the new information generated by the Hanshin-Awaji earthquake. Finally, we also find a negative relationship between stock price reaction and the extent to which an insurer wrote earthquake coverage in the damaged area.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Pacific Basin Working Paper Series with number 99-04.

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Date of creation: 1999
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Handle: RePEc:fip:fedfpb:99-04

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Keywords: Insurance industry ; Japan;

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