Catastrophic Losses and Insurer Profitability: Evidence from 9/11

35 Pages Posted: 6 Jun 2006

See all articles by Xuanjuan Chen

Xuanjuan Chen

Shanghai University of Finance and Economics

Helen I. Doerpinghaus

University of South Carolina - Darla Moore School of Business

Bing-Xuan Lin

University of Rhode Island

Tong Yu

University of Cincinnati - Department of Finance - Real Estate

Multiple version iconThere are 2 versions of this paper

Date Written: May 2006

Abstract

This paper examines two potential effects of the World Trade Center (WTC) attack on the insurance industry, a short-run negative claim effect and a long-run positive growth effect. We hypothesize a short-run claim effect, resulting from insufficient premium ex-ante for catastrophic losses, and a long-run growth effect, resulting from ex-post insurance supply reductions and potentially risk updating as well. We use short-run and long-run abnormal forecast revisions as measures of the claim and growth effects, analyzing both as functions of firm-specific characteristics. The empirical findings support our hypotheses. We find that firm type, estimates of firm losses, use of reinsurance, and the firm's tax position are statistically significant determinants of an insurer's short-run position. Firm type, estimates of firm losses, financial strength, underwriting risk, and use of reinsurance are statistically significant determinants of an insurer's long-run position.

Keywords: catastrophic losses, WTC attack, growth, claim, earnings forecast, insurance

JEL Classification: G22, G14

Suggested Citation

Chen, Xuanjuan and Doerpinghaus, Helen I. and Lin, Bing-Xuan and Yu, Tong, Catastrophic Losses and Insurer Profitability: Evidence from 9/11 (May 2006). Available at SSRN: https://ssrn.com/abstract=906151 or http://dx.doi.org/10.2139/ssrn.906151

Xuanjuan Chen

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Helen I. Doerpinghaus (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

Bing-Xuan Lin

University of Rhode Island ( email )

7 Lippitt Rd
Kingston, RI 02881
United States
401-874-4895 (Phone)
401-874-4312 (Fax)

Tong Yu

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
4019548606 (Phone)
4019548606 (Fax)

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