US property casualty insurers' responses to mega natural disasters

Abstract

I investigate how property and casualty insurers affected by the mega natural disasters of 2005, 2012, and 2017 adjusted their capital ratios and operations during the post‐disaster period. After the 2005 and 2012 events, affected insurers raised their capital ratios more than non‐affected insurers, relative to the period immediately preceding the events. However, following the 2017 event, affected insurers did not significantly increase their capital ratios relative to the pre‐event period. Further analysis reveals that this result is primarily driven by Florida‐focused insurers, which have less diversified operations and lower AM Best ratings, reflecting higher insolvency risk. These insurers may have faced higher costs of raising capital or had incentives to take on more risk, suggesting risk‐shifting behavior. Additionally, some affected insurers adjusted their asset portfolios and reinsurance usage. Overall, the results suggest that insurers aim to maintain target capital ratios and that specific firm characteristics influence their adjustment behaviors.