Costly Risk Bearing and the Supply of Catastrophic Insurance

Kleffner, Anne; Doherty, Neil A.

doi:10.2307/253476

Cited by 49 publications

(36 citation statements)

References 9 publications

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“…As argued by Kleffner and Doherty (1996) and de Lourdes Centeno and Simoes (2009), reinsurers often have better diversification opportunities than primary insurers if only because they do not face the same regulatory oversight as primary insurers.…”

Section: A (Short) Primer On Insurance and Reinsurancementioning

confidence: 99%

Insuring catastrophes and the role of governments

Boyer¹,

Nyce

2013

Nat. Hazards Earth Syst. Sci.

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In this paper we model the cost of providing insurance coverage against natural and man-made hazards. We propose an insurance market model that explains (1) the use of reinsurance to help finance the cost of catastrophic events and (2) the implicit (or explicit) presence of government entities acting as (re)insurers of last resort. Using an economic model, we show how insurance programmes should be designed to cover the losses due to a possible catastrophic natural hazard. Our results show that the optimal structure of a reinsurance programme minimizes the cost of offering insurance protection. We also show how government intervention can reduce the cost of insurance against natural catastrophes and increase policyholders' welfare. Our paper therefore offers public policy implications as to the role and presence of government as an insurer of last resort and the minimum insurance premium necessary to cover the cost of catastrophic events

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Section: A (Short) Primer On Insurance and Reinsurancementioning

confidence: 99%

Insuring catastrophes and the role of governments

Boyer¹,

Nyce

2013

Nat. Hazards Earth Syst. Sci.

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“…First, from the perspective of agency theory, the owner of insurance companies will have to compensate their managers by giving more attractive compensation packages so that manager will manage company's portfolio more efficiently (Kleffner and Doherty, 1996). Secondly, by shifting the risk of insolvency to the financial derivatives markets by using derivatives instrument (Berkman and Bradbury, 1996).…”

Section: Cumminsmentioning

confidence: 99%

“…In order to minimize the problem, shareholders could improve the compensation package for managers, so that managers will be better on manage company's portfolio diversification (Kleffner and Doherty, 1996). However, Nance et al (1993) and Cummins et al (1997) argue that hedging could also be an effective mechanism by which agency incentive conflicts inside larger firms can be alleviated.…”

Section: Firm Sizementioning

confidence: 99%

The Determinants of the Use of Derivatives in the Japanese Insurance Companies

Lantara

Takao

2013

Asia-Pacific Journal of Risk and Insurance

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ABSTRACT:The purpose of this study are to investigate the patterns of the use of derivatives by Japanese insurance companies, and to examine which firms-specific factors determine the decision of Japanese insurance companies to use derivatives. Using a sample of Japanese life insurance and non life insurance companies during the period of 2001-2008, we find that the participation rate for the use of derivatives by insurance companies in Japan is 72.4%, much higher than those found in the US, the UK or Australia. Using probit regression models, we examine the determinants of the use of derivatives, and we find that the decision to use derivatives by insurance companies is positively associated with firm size, leverage, and proportion of asset invested in stock, but negatively related with asset liability mismatch. We also find that the decision of Japanese insurance companies to extend their markets to operate globally increase the need to use derivatives.

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“…There is a sizable literature on assessment and coverage of earthquake risks (Froot 1999;Kleffner and Doherty 1996;Penalva 2002), on preventive policies to mitigate the quake damage (Coburn and Spence 2002, chapters 3, 6, 8;Kunreuther and Kleffner 1992), as well as on estimating the economic cost of earthquakes (FEMA 2000). While building on these studies, we focus on the post-earthquake recovery stage and show how current practices may benefit from incorporating more explicit financial incentives for the actors involved in restoring critical lifeline services.…”

Section: Introductionmentioning

confidence: 99%

Sequencing Lifeline Repairs After an Earthquake: An Economic Approach

Casari

Wilkie

2005

J Regul Econ

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Recoveries after recent earthquakes in the U.S. and Japan have shown that large welfare gains can be achieved by reshaping current emergency plans as incentive-compatible contracts. We apply tools from the mechanisms design literature to show ways to integrate economic incentives into the management of natural disasters and discuss issues related to the application to seismic event recovery. The focus is on restoring lifeline services such as the water, gas, transportation, and electric power networks. We put forward decisional procedures that an uninformed planner could employ to set repair priorities and help to coordinate lifeline firms in the post-earthquake reconstruction. __________________________________________________________________________

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Costly Risk Bearing and the Supply of Catastrophic Insurance

Cited by 49 publications

References 9 publications

Insuring catastrophes and the role of governments

Insuring catastrophes and the role of governments

The Determinants of the Use of Derivatives in the Japanese Insurance Companies

Sequencing Lifeline Repairs After an Earthquake: An Economic Approach

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