The Impact of Catastrophes on Insurer Stock Volatility |
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| Authors: | Christian Thomann |
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| Institution: | Christian Thomann is at the Ministry of Finance, Stockholm S‐103 33, Sweden, and Institute for Risk and Insurance, Leibniz University Hannover, K?nigsworther Platz 1, 30167 Hannover, Germany. The author can be contacted via e‐mail: ct@ivbl.uni‐hannover.de. The author thanks Georges Dionne (the editor) and three anonymous referees. Furthermore, the author thanks Patrick Cooper, Martin Eling, Jim Hilliard, Tim Lohse, Jens Martin, Razvan Pascalau, Thomas Post, Sebastian Reddemann, Harris Schlesinger, Bert Scholtens, J‐Matthias Graf von der Schulenburg, Magnus Svensson, and the participants at the university seminars at Alabama, Hannover, Munich, Vienna, and the Vienna School of Business and Economics. Also, the author wants to extend a very special thanks to Walter Enders. An earlier version of this article was presented at the 2008 meeting of the European Group of Risk and Insurance Economists, the 2009 meeting of the German Insurance Science Association, and the 2009 meeting of the American Risk and Insurance Association. The author acknowledges financial support from the German Insurance Science Association (Doktor Carl‐Arthur‐Pastor‐Scholarship). The views expressed in this article and all remaining errors are solely the responsibility of the author. |
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| Abstract: | This article investigates the impact of natural catastrophes and the 9‐11 attacks on (1) the volatility of insurance stocks and (2) the correlation of insurance stocks with the market. We find that natural catastrophes increase the volatility of insurance stocks. They also have a tendency to reduce the correlation of insurance stocks and the market. Investors can, consequently, diversify natural catastrophe risk by additionally holdings of a market portfolio. However, this does not hold for 9‐11. The events of 9‐11 led to increases in volatility and, simultaneously, to an increase in correlation. We also find evidence that 9‐11 increased the beta of insurance stocks. |
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