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Tax-Deductible Pre-Event Catastrophe Loss Reserves: The Case of Florida1


  • Milidonis, Andreas
  • Grace, Martin F.


After Hurricane Andrew the U.S. Congress entertained proposals to allow insurers to employ tax-deferred loss reserves. Interest was strong at first, but as the events receded interest waned. However, after the most recent severe hurricane seasons the proposals are again being discussed. In this paper we examine the institution of catastrophe loss reserves in a stylized model of insurance provisions. First, we find that the benefits of the tax-deferred loss reserves depend on the actuarial assumptions regarding the expected loss distribution. Second, we make the first attempt at estimating the change in consumer behavior and the social welfare implications for permitting tax deferred loss reserves. In sum, we find under specific circumstances there are large welfare gains for allowing the tax deferral of reserves.

Suggested Citation

  • Milidonis, Andreas & Grace, Martin F., 2008. "Tax-Deductible Pre-Event Catastrophe Loss Reserves: The Case of Florida1," ASTIN Bulletin, Cambridge University Press, vol. 38(1), pages 13-51, May.
  • Handle: RePEc:cup:astinb:v:38:y:2008:i:01:p:13-51_01

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    4. repec:bla:jrinsu:v:84:y:2017:i:s1:p:393-415 is not listed on IDEAS
    5. Schlütter, Sebastian, 2011. "The role of frictional costs for insurance pricing and insurer default risk," ICIR Working Paper Series 07/11, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    6. repec:bla:jrinsu:v:84:y:2017:i:s1:p:495-514 is not listed on IDEAS
    7. Kousky, Carolyn & Cooke, Roger M., 2009. "The Unholy Trinity: Fat Tails, Tail Dependence, and Micro-Correlations," Discussion Papers dp-09-36-rev.pdf, Resources For the Future.
    8. repec:bla:jrinsu:v:84:y:2017:i:s1:p:273-277 is not listed on IDEAS
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    12. repec:bla:jrinsu:v:84:y:2017:i:s1:p:417-437 is not listed on IDEAS
    13. Braun, Alexander, 2011. "Pricing catastrophe swaps: A contingent claims approach," Insurance: Mathematics and Economics, Elsevier, vol. 49(3), pages 520-536.
    14. repec:bla:jrinsu:v:84:y:2017:i:s1:p:279-297 is not listed on IDEAS
    15. repec:bla:jrinsu:v:84:y:2017:i:s1:p:345-365 is not listed on IDEAS
    16. Burnecki, Krzysztof & Giuricich, Mario Nicoló & Palmowski, Zbigniew, 2019. "Valuation of contingent convertible catastrophe bonds — The case for equity conversion," Insurance: Mathematics and Economics, Elsevier, vol. 88(C), pages 238-254.
    17. repec:bla:jrinsu:v:84:y:2017:i:s1:p:299-317 is not listed on IDEAS

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