Why Some Disaster Insurance Does not Exist
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Yueyun Chen
The failure of some disaster insurance market has been a very serious problem. This paper focuses on why disaster reinsurance fails and how that will affect the availability of primary disaster insurance. The insurer’s unexpected costs are added to the expected costs associated with the insured event to illustrate the necessary and sufficient conditions for the existence of disaster insurance and reinsurance. Particularly, investors’ negative response to an insurer’s huge, disaster-related liability exposures may lead to availability problem unless the insurer’s asset value losses in the financial market can be minimized. A large insurer may be more likely to withdraw from underwriting disaster insurance. Three different pricing schemes for disaster reinsurance contracts are investigated. The one which is based on the Option Pricing Theory is rejected because it leads to market failure.
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Featured Article
- Political Risk Insurance and Foreign Direct Investments
- Why Some Disaster Insurance Does not Exist
- Demographic Shift and Financial Markets in APEC: New Age Solutions to Age Old Challenges
- Modified Logistic Model for Mortality Forecasting and the Application of Mortality-Linked Securities
- Asymptotic Behavior of the Finite-Time Ruin Probability with Constant Interest Force and WUOD Heavy-Tailed Claims
- Risk Reporting Practices of Indian Companies in the SENSEX
Articles in the same Issue
- Featured Article
- Political Risk Insurance and Foreign Direct Investments
- Why Some Disaster Insurance Does not Exist
- Demographic Shift and Financial Markets in APEC: New Age Solutions to Age Old Challenges
- Modified Logistic Model for Mortality Forecasting and the Application of Mortality-Linked Securities
- Asymptotic Behavior of the Finite-Time Ruin Probability with Constant Interest Force and WUOD Heavy-Tailed Claims
- Risk Reporting Practices of Indian Companies in the SENSEX
