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The Financing of Catastrophe Risk

Is it possible that the insurance and reinsurance industries cannot handle a major catastrophe? Ten years ago, the notion that the overall cost of a single catastrophic event might exceed $10 billion was unthinkable. With ever increasing property-casualty risks and unabated growth in hazard-prone areas, insurers and reinsurers now envision the possibility of disaster losses of $50 to $100 billion in the United States.

Against this backdrop, the capitalization of the insurance and reinsurance industries has become a crucial concern. While it remains unlikely that a single event might entirely bankrupt these industries, a big catastrophe could place firms under severe stress, jeopardizing both policy holders and investors and causing profound ripple effects throughout the U.S. economy.

The Financing of Catastrophe Risk assembles an impressive roster of experts from academia and industry to explore the disturbing yet realistic assumption that a large catastrophic event is inevitable. The essays offer tangible means of both reassessing and raising the level of preparedness throughout the insurance and reinsurance industries.

488 pages | 68 line drawings, 74 tables | 6 x 9 | © 1999

National Bureau of Economic Research Project Report

Economics and Business: Economics--General Theory and Principles, Economics--Government Finance

Table of Contents

Kenneth A. Froot
1. Insurer Demand for Catastrophe Reinsurance
Anne Gron
Comment: Steven F. Goldberg
Comment: Raghuram Rajan
2. Alternative Means of Redistributing Catastrophic Risk in a National Risk Management System
Christopher M. Lewis and Kevin C. Murdock
Comment: Peter Diamond
Comment: Paolo M. Pellegrini
3. Pricing Excess-of-Loss Reinsurance Contracts against Catastrophic Loss
J. David Cummins, Christopher M. Lewis, and Richard D. Phillips
Comment: Sanjiv Ranjan Das
Comment: James A. Tilley
4. Challenges Facing the Insurance Industry in Managing Catastrophic Risks
Paul R. Kleindorfer and Howard C. Kunreuther
Comment: James R. Garven
Comment: Dwight Jaffee
5. The Pricing of U.S. Catastrophe Reinsurance
Kenneth A. Froot and Paul G. J. O’Connell
Comment: Jeremy C. Stein
6. Reinsurance for Catastrophes and Cataclysms
David M. Cutler and Richard J. Zeckhauser
Comment: John H. Cochrane
7. The Influence of Income Tax Rules on Insurance Reserves
David F. Bradford and Kyle D. Logue
Comment: Ross J. Davidson Jr.
Comment: James R. Hines Jr.
8. Courting Disaster? The Transformation of Federal Disaster Policy since 1803
David A. Moss
Comment: Clement S. Dwyer Jr.
Comment: R. Glenn Hubbard
9. The Moral Hazard of Insuring the Insurers
James G. Bohn and Brian J. Hall
Comment: Christopher M. McGhee
Comment: David Scharfstein
10. Index Hedge Performance: Insurer Market Penetration and Basis Risk
John A. Major
Comment: André F. Perold
11. Panel Discussions
Author Index
Subject Index

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