Abstract

We investigate the impact of hurricanes, as an anticipated natural disaster, on the premium incomes and stock prices of property and casualty insurers in the United States. Our sample consists of forty-seven publicly traded insurance firms in the U.S. and the three most serious hurricanes during the period from 2006 to 2014. The three hurricanes are broken down into 150 state-level hazards, including twenty-seven states that were directly affected by the disasters, twenty-seven states that were close-by, and ninety-six states that were unaffected. Our results show that insurers in all areas have a significant premium increase after hurricanes. Premium changes are significantly different between any two types of areas in an event year. In addition, we observe that the expected benefits from potential premium increases after a catastrophe appear to dominate the costs insurance companies incur as a result of policyholders’ reimbursement claims. However, while there are no obvious distinguishing results among areas, there is some discrimination. These results vary based on a state’s geographical proximity to a disaster. Insurers in close-by states enjoy some advantages from hurricanes. In contrast, insurers in affected states suffer negative consequences. Finally, we observe that the severity of hurricanes causes significant differences in abnormal performance. Big companies suffer negative impacts due to hurricanes. Higher returns on assets are associated with higher abnormal returns.