IDEAS home Printed from https://ideas.repec.org/a/ids/ijecbr/v11y2016i3p231-246.html
   My bibliography  Save this article

Market responses to loss shocks and insurers' post-catastrophe performance in the US property-casualty insurance market

Author

Listed:
  • Ning Wang
  • Yiling Deng

Abstract

We employ impulse response analyses to study aggregated time series data of the US property-casualty insurance market. We find that insurance price is more sensitive towards loss shocks than total premiums. Our results at the industry level support capacity constraint theory that loss shocks significantly increase insurance price and reduce insurance coverage quantity. The data at the firm level is also examined. We find a positive relationship between insurers' post-catastrophe performance and capital capacity while their post-catastrophe performance is ambiguously associated with financial quality and losses. Our findings suggest that the capital recovery after catastrophes in the insurance market is intelligible and some ordered.

Suggested Citation

  • Ning Wang & Yiling Deng, 2016. "Market responses to loss shocks and insurers' post-catastrophe performance in the US property-casualty insurance market," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 11(3), pages 231-246.
    • Handle: RePEc:ids:ijecbr:v:11:y:2016:i:3:p:231-246
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=76163
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ursina Meier & J. Francois Outreville, 2010. "Business cycles in insurance and reinsurance: international diversification effects," Applied Financial Economics, Taylor & Francis Journals, vol. 20(8), pages 659-668.
    2. Martin F. Grace & Robert W. Klein & Paul R. Kleindorfer, 2004. "Homeowners Insurance With Bundled Catastrophe Coverage," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 351-379, September.
    3. Seungmook Choi & Don Hardigree & Paul D. Thistle, 2002. "The Property/Liability Insurance Cycle: A Comparison of Alternative Models," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 530-548, January.
    4. Garven, James R. & Louberge, Henri, 1996. "Reinsurance, Taxes, and Efficiency: A Contingent Claims Model of Insurance Market Equilibrium," Journal of Financial Intermediation, Elsevier, vol. 5(1), pages 74-93, January.
    5. Winter Ralph A., 1994. "The Dynamics of Competitive Insurance Markets," Journal of Financial Intermediation, Elsevier, vol. 3(4), pages 379-415, September.
    6. Jiang Cheng & Mary A. Weiss, 2012. "Capital Structure in the Property-Liability Insurance Industry: Tests of the Tradeoff and Pecking Order Theories," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 35(1), pages 1-43.
    7. 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.
    8. Ursina B. Meier & J. François Outreville, 2006. "Business cycles in insurance and reinsurance: the case of France, Germany and Switzerland," Journal of Risk Finance, Emerald Group Publishing, vol. 7(2), pages 160-176, March.
    9. Ralph A. Winter, 1991. "The Liability Insurance Market," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 115-136, Summer.
    10. Doherty, Neil A & Lamm-Tennant, Joan & Starks, Laura T, 2003. "Insuring September 11th: Market Recovery and Transparency," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 179-199, March-May.
    11. Gron, Anne & Winton, Andrew, 2001. "Risk Overhang and Market Behavior," The Journal of Business, University of Chicago Press, vol. 74(4), pages 591-612, October.
    12. Erwann O. Michel‐Kerjan & Carolyn Kousky, 2010. "Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 369-397, June.
    13. Cummins, J. David & Danzon, Patricia M., 1997. "Price, Financial Quality, and Capital Flows in Insurance Markets," Journal of Financial Intermediation, Elsevier, vol. 6(1), pages 3-38, January.
    14. Mary A. Weiss & Joon‐Hai Chung, 2004. "U.S. Reinsurance Prices, Financial Quality, and Global Capacity," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 437-467, September.
    15. Flannery, Mark J. & Rangan, Kasturi P., 2006. "Partial adjustment toward target capital structures," Journal of Financial Economics, Elsevier, vol. 79(3), pages 469-506, March.
    16. Patricia Born & W. Viscusi, 2006. "The catastrophic effects of natural disasters on insurance markets," Journal of Risk and Uncertainty, Springer, vol. 33(1), pages 55-72, September.
    17. Xuanjuan Chen & Helen Doerpinghaus & Bing‐Xuan Lin & Tong Yu, 2008. "Catastrophic Losses and Insurer Profitability: Evidence From 9/11," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(1), pages 39-62, March.
    18. Warren Kriesel & Craig Landry, 2004. "Participation in the National Flood Insurance Program: An Empirical Analysis for Coastal Properties," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 405-420, September.
    19. Bertrand Venard & David Cummins, 2007. "Handbook of international insurance. Between global dynamics and local contingencies," Post-Print hal-00778917, HAL.
    20. Kunreuther, Howard C. & Michel-Kerjan, Erwann O., 2011. "At War with the Weather: Managing Large-Scale Risks in a New Era of Catastrophes," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262516543, December.
    21. Martin F. Grace & Robert W. Klein, 2009. "The Perfect Storm: Hurricanes, Insurance, and Regulation," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 12(1), pages 81-124, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patricia H. Born & Barbara Klimaszewski-Blettner, 2013. "Should I Stay or Should I Go? The Impact of Natural Disasters and Regulation on U.S. Property Insurers’ Supply Decisions," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(1), pages 1-36, March.
    2. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    3. repec:ipg:wpaper:2014-047 is not listed on IDEAS
    4. Catherine Bruneau & Nadia Sghaier, 2014. "Cyclicity in the French Property," Working Papers 2014-47, Department of Research, Ipag Business School.
    5. Vijay Aseervatham & Patricia Born & Dominik Lohmaier & Andreas Richter, 2017. "Hazard-Specific Supply Reactions in the Aftermath of Natural Disasters," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(2), pages 193-225, April.
    6. Marc A. Ragin & Martin Halek, 2016. "Market Expectations Following Catastrophes: An Examination of Insurance Broker Returns," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(4), pages 849-876, December.
    7. Fredj Jawadi & Catherine Bruneau & Nadia Sghaier, 2009. "Nonlinear Cointegration Relationships Between Non‐Life Insurance Premiums and Financial Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(3), pages 753-783, September.
    8. Harrington, Scott E. & Niehaus, Greg, 2003. "Capital, corporate income taxes, and catastrophe insurance," Journal of Financial Intermediation, Elsevier, vol. 12(4), pages 365-389, October.
    9. Howard Kunreuther & Erwann Michel-Kerjan, 2004. "Dealing with Extreme Events: Challenges for Terrorism Risk Coverage in the United States," Working Papers hal-00242930, HAL.
    10. David L. Dicks & James R. Garven, 2022. "Asymmetric information and insurance cycles," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(2), pages 449-474, June.
    11. Jiang, Shi-jie & Nieh, Chien-Chung, 2012. "Dynamics of underwriting profits: Evidence from the U.S. insurance market," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 1-15.
    12. Tetin, Ilya, 2015. "Underwriting cycle in Russia and macroeconomic indicators," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 65-83.
    13. Seungmook Choi & Don Hardigree & Paul D. Thistle, 2002. "The Property/Liability Insurance Cycle: A Comparison of Alternative Models," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 530-548, January.
    14. Catherine Bruneau & Nadia Sghaier, 2008. "Les cycles de souscription de l’assurance non vie en France," Working Papers hal-04140756, HAL.
    15. Sabine Lemoyne de Forges & Ruben Bibas & Stéphane Hallegatte, 2001. "A dynamic model of extreme risk coverage : Resilience and e fficiency in the global reinsurance market," CIRED Working Papers halshs-00800460, HAL.
    16. Milidonis, Andreas, 2013. "Compensation incentives of credit rating agencies and predictability of changes in bond ratings and financial strength ratings," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3716-3732.
    17. Beatty, Anne & Gron, Anne & Jorgensen, Bjorn, 2005. "Corporate risk management: evidence from product liability," Journal of Financial Intermediation, Elsevier, vol. 14(2), pages 152-178, April.
    18. Dong Wang & Rachel A. Davidson & Joseph E. Trainor & Linda K. Nozick & Jamie Kruse, 2017. "Homeowner purchase of insurance for hurricane-induced wind and flood damage," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 88(1), pages 221-245, August.
    19. Harrington, Scott E. & Danzon, Patricia M. & Epstein, Andrew J., 2008. ""Crises" in medical malpractice insurance: Evidence of excessive price-cutting in the preceding soft market," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 157-169, January.
    20. Upreti, Vineet & Adams, Mike, 2015. "The strategic role of reinsurance in the United Kingdom’s (UK) non-life insurance market," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 206-219.
    21. Howard Kunreuther & Erwann Michel-Kerjan, 2015. "Demand for fixed-price multi-year contracts: Experimental evidence from insurance decisions," Journal of Risk and Uncertainty, Springer, vol. 51(2), pages 171-194, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijecbr:v:11:y:2016:i:3:p:231-246. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Parker (email available below). General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=310 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.