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DIVERSIFICATION IN CATASTROPHE INSURANCE MARKETS

Published online by Cambridge University Press:  02 July 2021

Hengxin Cui ,
Ken Seng Tan  and
Fan Yang
Hengxin Cui
Affiliation:
Department of Statistics and Actuarial Science University of Waterloo, 200 University Avenue West, Waterloo ON, N2L 3G1, Canada E-Mail: [email protected]
Ken Seng Tan
Affiliation:
Division of Banking & Finance Nanyang Business School, Nanyang Technological UniversitySingapore E-Mail: [email protected]
Fan Yang*
Affiliation:
Department of Statistics and Actuarial Science University of Waterloo, 200 University Avenue West Waterloo, ON, N2L 3G1, Canada E-Mail: [email protected]
*
E-Mail: [email protected]
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Abstract

Catastrophe insurance markets fail to provide sufficient protections against natural catastrophes, whereas they have the capacity to absorb the losses. In this paper, we assume the catastrophic risks are dependent and extremely heavy-tailed, and insurers have limited liability to cover losses up to a certain amount. We provide a comprehensive study to show that the diversification in the catastrophe insurance markets can be transited from suboptimal to preferred by increasing the number of insurers in the market. This highlights the importance of coordination among insurers and the government intervention in encouraging insurers to participate in the catastrophe insurance market to exploit risk sharing. Simulation studies are provided to illuminate the key findings of our results.

Keywords

Archimedean copulacatastrophe insurance marketsdiversificationheavy taillimited liabilityC60G11L25
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 51 , Issue 3 , September 2021 , pp. 753 - 778
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of The International Actuarial Association

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