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dc.contributor.author
Goussebaïle, Arnaud
dc.contributor.author
Louaas, Alexis
dc.date.accessioned
2020-12-15T12:10:30Z
dc.date.available
2020-12-14T11:26:43Z
dc.date.available
2020-12-15T12:10:30Z
dc.date.issued
2020-10-01
dc.identifier.other
10.2139/ssrn.3685086
en_US
dc.identifier.uri
http://hdl.handle.net/20.500.11850/456213
dc.description.abstract
This paper provides a welfare analysis of solvency regulation for catastrophe insurance. We consider an economy with risk-averse agents exposed to a common source of risk and an insurer owned by risk-averse shareholders. We show that the optimal insurance contract features full coverage and is Pareto optimal if and only if it includes participation in the insurer’s profit. When such participation is not available (as is often the case in the real world), we demonstrate that solvency regulation allowing insurer default or limited liability in the most catastrophic states is Pareto improving. We use a numerical application to analyze the welfare benefits of different default rates for a wide range of risk lines, risk correlations, and ratios of insureds to insurer’s shareholders. While allowing a small probability of default yields some welfare gains, we show that an excessive default probability may be highly detrimental to welfare. We find that a good rule of thumb is to maintain a default probability lower than the individual probability of loss.
en_US
dc.language.iso
en
en_US
dc.publisher
Social Science Research Network
en_US
dc.subject
Insurance
en_US
dc.subject
Catastrophic risk
en_US
dc.subject
Default risk
en_US
dc.subject
Limited liability
en_US
dc.subject
Solvency regulation
en_US
dc.title
Catastrophe Insurance and Solvency Regulation
en_US
dc.type
Working Paper
ethz.journal.title
SSRN
ethz.pages.start
3685086
ethz.size
29 p.
en_US
ethz.code.jel
JEL - JEL::G - Financial Economics::G2 - Financial Institutions and Services::G22 - Insurance; Insurance Companies; Actuarial Studies
en_US
ethz.code.jel
JEL - JEL::G - Financial Economics::G2 - Financial Institutions and Services::G28 - Government Policy and Regulation
en_US
ethz.code.jel
JEL - JEL::H - Public Economics::H1 - Structure and Scope of Government::H11 - Structure, Scope, and Performance of Government
en_US
ethz.code.jel
JEL - JEL::H - Public Economics::H8 - Miscellaneous Issues::H84 - Disaster Aid
en_US
ethz.code.jel
JEL - JEL::Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics::Q5 - Environmental Economics::Q54 - Climate; Natural Disasters and Their Management; Global Warming
en_US
ethz.publication.place
Rochester, NY
en_US
ethz.publication.status
published
en_US
ethz.leitzahl
ETH Zürich
en_US
ethz.relation.isPreviousVersionOf
10.3929/ethz-b-000701889
ethz.date.deposited
2020-12-14T11:27:02Z
ethz.source
FORM
ethz.eth
yes
en_US
ethz.availability
Metadata only
en_US
ethz.rosetta.installDate
2020-12-15T12:10:40Z
ethz.rosetta.lastUpdated
2024-02-02T12:41:24Z
ethz.rosetta.exportRequired
true
ethz.rosetta.versionExported
true
ethz.COinS
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