Natural catastrophes often have catastrophic risks on insurance companies as well as on the insured. Using a very large dataset on homeowners%u2019 insurance coverage by state, by firm, and by year for the 1984 to 2004 period, this paper documents the positive effect on losses and loss ratios of both unexpected catastrophes as well as large events that the authors term %u201Cblockbuster catastrophes.%u201D Insurers adapt to these catastrophic risks by raising insurance rates, leading to lower loss ratios after the catastrophic event. There is a widespread event of unexpected catastrophes and blockbuster catastrophes that reduces total premiums earned in the state, reduces the total number writing insurance coverage in the state, and leads to the exit of firms from the state. Firms with low levels of homeowners%u2019 premiums are most adversely affected by the catastrophes.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
12348.
Length: Date of creation: Jul 2006 Date of revision: Handle: RePEc:nbr:nberwo:12348
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Find related papers by JEL classification: D8 - Microeconomics - - Information, Knowledge, and Uncertainty G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability
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