IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Global loss diversification in the insurance sector

  • Sheremet, Oleg
  • Lucas, André

We study the possibility for international diversification of catastrophe risk by the insurance sector. Adopting the argument that large insurance losses may be a [`]globalizing factor' for the industry, we study the dependence of geographically distant insurance markets via equity returns. In particular, we employ conditional copula theory to model the bivariate dependence of the insurance industry. In contrast to earlier literature on this subject, we disentangle the causes of dependence stemming from the asset side from those from the liability side by conditioning on general market conditions. We find that for both Europe-America and Europe-Asia the dependence is significant. Moreover, we find asymmetric effects: the international dependence is particularly high for losses, even after conditioning for the asset side dependence. Finally, we investigate the time variation in copula parameters and find evidence that dependence in the insurance sector has increased over time, thus reducing the scope for international diversification of large losses in this sector.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6V8N-4V70N72-1/2/6aa1b7bf9d3772adcfe813acf84cd680
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

Volume (Year): 44 (2009)
Issue (Month): 3 (June)
Pages: 415-425

as
in new window

Handle: RePEc:eee:insuma:v:44:y:2009:i:3:p:415-425
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505554

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
  2. Fields, Joseph A & Klein, Linda S & Myskowski, Edward G, 1998. "Lloyd's Financial Distress and Contagion within the US Property and Liability Insurance Industry," Journal of Risk and Uncertainty, Springer, vol. 16(2), pages 173-85, May-June.
  3. Cummins, J. David & Lewis, Christopher M. & Wei, Ran, 2006. "The market value impact of operational loss events for US banks and insurers," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2605-2634, October.
  4. Kenneth A. Froot, 2001. "The Market for Catastrophe Risk: A Clinical Examination," NBER Working Papers 8110, National Bureau of Economic Research, Inc.
  5. Hansen, Bruce E, 1994. "Autoregressive Conditional Density Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 705-30, August.
  6. Geluk, J.L. & de Vries, C.G., 2004. "Weighted sums of subexponential random variables and asymptotic dependence between returns on reinsurance equities," Econometric Institute Research Papers EI 2004-47, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  7. Kenneth A. Froot & Paul G. J. O'Connell, 1997. "On The Pricing of Intermediated Risks: Theory and Application to Catastrophe Reinsurance," NBER Working Papers 6011, National Bureau of Economic Research, Inc.
  8. Elijah Brewer, III & William E. Jackson, III, 2002. "Inter-industry contagion and the competitive effects of financial distress announcements: evidence from commercial banks and life insurance companies," Working Paper Series WP-02-23, Federal Reserve Bank of Chicago.
  9. Andrew Patton, 2004. "Modelling Asymmetric Exchange Rate Dependence," Working Papers wp04-04, Warwick Business School, Finance Group.
  10. Laurent, Sebastien & Peters, Jean-Philippe, 2002. " G@RCH 2.2: An Ox Package for Estimating and Forecasting Various ARCH Models," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 447-85, July.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:insuma:v:44:y:2009:i:3:p:415-425. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.