The Impact of Mega-Catastrophes on Insurers: An Exposure-Based Analysis of the U.S. Homeowners’ Insurance Market

Bjoern Hagendorff, Jens Hagendorff, K. Keasey

Research output: Contribution to journalArticlepeer-review

Abstract

Insurance is a key risk-sharing mechanism that protects citizens and governments from the losses caused by natural catastrophes. Given the increase in the frequency and intensity of natural catastrophes over recent years, this article analyzes the performance effects of mega-catastrophes for U.S. insurance firms using a measure of market expectations. Specifically, we analyze the share price losses of insurance firms in response to catastrophe events to ascertain whether mega-catastrophes significantly damage the performance of insurers and whether different types of mega-catastrophes have different impacts. The main message from our analysis is that the impact of mega-catastrophes on insurers has not been too damaging. While the exact impact of catastrophes depends on the nature of the event and the degree of competition within the relevant insurance market (less competition allows insurers to recoup catastrophe losses through adjustments to premiums), our overall results suggest that U.S. insurance firms can adequately manage the risks and costs of mega-catastrophes. From a public policy perspective, our results show that insurance provides a robust means of sharing catastrophe losses to help reduce the financial consequences of a catastrophe event.
Original languageEnglish
Pages (from-to)157–173
JournalRisk Management
Volume35
Issue number1
Early online date14 Jul 2014
DOIs
Publication statusPublished - Jan 2015

Keywords

  • catastrophe risk
  • homeowner's insurance
  • performance

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