A Quantitative Study of the Effect of Catastrophes on United States Insurance Company Impairment

Natural disasters can have catastrophic results for insureds; can the same be said for their insurance companies? Although little current research exists that clearly argues a connection between catastrophic shock losses and subsequent insurance/reinsurance company impairment, catastrophes are often cited as one of the causes of insurance company insolvency or impairment. This research attempts to quantify the correlation of insurance company impairments in the wake of catastrophes in the United States. Through quantitative analysis, the research consists of a multi-decade, multivariate regression analysis investigating the historical levels of insurance company impairment (dependent variable) in the aftermath of catastrophic shock losses (independent variable). This independent variable's correlation is also benchmarked against another independent variable suggested in current research, specifically insurance company impairments/insolvencies and the position of the year in the property and casualty insurance companies' underwriting cycle in the United States during the same period. Dependent variable data comes from the rating agency A.M. Best Company's database, which consists of all rated United States insurance companies (over 5000 in number) during a period of 35 years (commencing with 1978 and ending with 2012), containing 735 impairments during this period. It was found that neither catastrophic losses nor position in the underwriting cycle were significantly related to the annual number of property and casualty insurance carrier impairments for the entire universe of companies during this recent, multi-decade period.