Title

An Examination of the Geographic Aggregation of Catastrophic Risk

Authors

Authors

R. E. Dumm; M. E. Johnson;C. C. Watson

Comments

Authors: contact us about adding a copy of your work at STARS@ucf.edu

Abbreviated Journal Title

Geneva Pap. Risk Insur.-Issues Pract.

Keywords

catastrophe modelling; subsidies; pooling; geographic diversification; INSURANCE; GOVERNMENT; MARKETS; Business, Finance

Abstract

The debate in the United States about establishing a mechanism for insuring catastrophic wind risk at the national level pre-dates the intense 2004-2005 hurricane seasons. The prevailing argument against establishing any larger risk pool is that it would create a subsidy for the higher risk exposures. To determine whether benefits do accrue by aggregating catastrophic risk across increasingly wide geographic areas, the paper uses catastrophe models to evaluate the behavior of residential property portfolios within the state of Florida and for a larger risk pool that includes multiple combinations of coastal states in the southeastern United States. We find that geographic aggregation does not inherently subsidise high-risk exposures, reduces uncertainty, and reduces required reserves relative to total exposure for the least frequent and more severe events. This finding holds true for all state combinations evaluated in this study.

Journal Title

Geneva Papers on Risk and Insurance-Issues and Practice

Volume

40

Issue/Number

1

Publication Date

1-1-2015

Document Type

Article

Language

English

First Page

159

Last Page

177

WOS Identifier

WOS:000346816700008

ISSN

1018-5895

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