Paper #527

Title:

Insuring California earthquakes and the role for catastrophe bonds

Author:

José Penalva

Date:

January 2001

Abstract:

The 1994 Northridge earthquake sent ripples to insurance conpanies everywhere. This was one in a series of natural disasters such as Hurricane Andrew which together with the problems in Lloyd's of London have insurance companies running for cover. This paper presents a calibration of the U.S. economy in a model with financial markets for insurance derivatives that suggests the U.S. economy can deal with the damage of natural catastrophe far better than one might think.

Keywords:

Catastrophe bonds, eartquake insurance, calibration, survival analysis

JEL codes:

D58, G12, G22

Area of Research:

Finance and Accounting

Published in:

The Journal of Risk Finance, 3(4), 54-72, 2002

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