How Much Can the US Property and Casualty Insurers Cover Catastrophic Losses? -Measuring the capacities of the property and casualty insurance markets in California, Delaware, Iowa, New York, Oklahoma, Texas, Washington, and Connecticut Pubblico

Abstract

This paper provides a detailed study of the financial strength of the property and casualty insurance market in the US, by estimating the ability of the property and casualty insurers to respond to abnormal losses. This study begins by constructing an estimation model for lower-bound payout capacity of each state. Using the constructed model, it then investigates the percentages of the claimed losses that property and casualty insurers in California, Delaware, Iowa, New York, Oklahoma, Texas, and Washington can pay, in case of catastrophes of $1 billion, $5 billion, $10 billion, and $50 billion losses. The results of the empirical analysis suggest that Connecticut and Delaware have more than enough financial capacity; New York, California, Texas, Iowa, and Washington have adequate levels of capacity; Nonetheless, Oklahoma has an alarmingly insufficient level of capacity for catastrophes.

Table of Contents

1. Introduction------------------------------------------------------------------------------------------------------1 2. Literature Review------------------------------------------------------------------------------------------------7 3. Data and Methodology------------------------------------------------------------------------------------------11

1) Data ---------------------------- ---------------------------- ---------------------------- -------------------11

2) Methodology ---------------------------- ---------------------------- ---------------------------- ----------12

4. Empirical Results------------------------------------------------------------------------------------------------20 5. Conclusion ------------------------------------------------------------------------------------------------------26 References---------------------------------------------------------------------------------------------------------29 Tables and Graphs

Table 1: Estimated Insured Property Losses, US Catastrophes, 2002-2011----------------------------31

Table 2: Property and Casualty Insurance Insolvency List, 1975-2012 ---------------------------------32

Graph 1: Estimated Insured Property Losses, US Catastrophes, 2002-2011---------------------------35

Table 3: Property and Casualty Insurance Income Analysis 2007-2011--------------------------------36

Graph 2 : Insured Losses in the US, 1980-2012---------------------------------------------------------- 37

Graph 3: Net Premiums Written Percent Change From Prior Year, 1975-2011------------------------- 38

Graph 4: Number and Percentage of Property and Casualty Insurer Insolvencies Since 1975--------39

Graph 5: Number of Property and Casualty Insurers in 2002, 2006, and 2011------------------------40

Table 4: The 10 Most Costly Catastrophes, United States-----------------------------------------------41

Graph 6: Annual Losses Incurred, 2003-2011 (in 2011 USD) -------------------------------------------42

Graph 7: Total Losses Incurred between 2003 and 2011 (in 2011 USD)-------------------------------43

Graph 8: Annual Policyholder's Surplus 2002-2011 (in 2011 USD)-------------------------------------44

Table 5: Market Capacities of 2011 for Catastrophic Losses --------------------------------------------45

Graph 9: Capacities for $1 billon, $5 billion, $10 billion, and $50 billion Catastrophes, 2002-2011--46

About this Honors Thesis

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School	Emory College
Department	Economics and Mathematics
Degree	BA
Submission	Honors Thesis
Language	English
Research Field	Economics, General Economics, Commerce-Business Economics, Finance
Parola chiave	natural disaster natural hazard capacity market catastrophe insurance property casualty
Committee Chair / Thesis Advisor	Chen, Kaiji, Emory University
Committee Members	Gao, Hao , Emory University Choi, Bumyong , Emory University

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