Insuring California earthquakes and the role for catastrophe bonds

Penalva, José S.

Insuring California earthquakes and the role for catastrophe bonds

License

Citation

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

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.