Manel Ben Akal
Ph.D. Student, University of Manouba, Tunisia.
J. Chichti
Professor, Tunisia School of Business, Tunisia.
Nadine Galy
Professor, Toulouse Business School, France.
Laurent Germain
Professor, Toulouse Business School, France.Impact of Extreme Events on Insurance and
Reinsurance Stock Performance: A Comparison
between European, US and Japanese Markets
The current economic instability has influenced the financial market
among others and more specifically the performance of market
intermediaries. Given the growing risk diversity embedded in financial
markets, the observed imbalance between the supply and demand sides
has been likely to have a negative impact on the performance of
financial actors. This phenomenon is prevalent for insurance and
reinsurance companies.
The aim of this paper is to measure, explain and compare the
impact of extreme risks on the stock performance of the three major
insurance and reinsurance markets over the period from 1973 to 2009.
The central question we seek to answer is the following: in how far do
natural and man-made disasters affect the financial performance of
European, US and Japanese and insurance and reinsurance companies?
We use event study methodology to measure the effect of natural
and man-made disasters on the stock prices of European, US and
Japanese insurance as well as reinsurance companies. The data we used
is the catastrophe data extracted from SwissRe Sigma publications,
while stock returns have been collected from Datastream.
The bottom line is that results are similar across all countries. We
observe a significant negative impact only at the date the event
occurred, for both insurance and reinsurance companies. We find a
stronger impact within the sample of reinsurance companies.
Nonetheless, the lifetime of the impact is relatively short and stock
prices revert back to their pre-impact level at most five days following
the date of the disaster.