The effectiveness of asset, liability and equity hedging against catastrophe risk: the cases of winter storms in North America and Europe

Yang‐Che Wu and Ming Jing Yang

European Financial Management, 2018, vol. 24, issue 5, 893-918

Abstract: The winter storms in North America and Europe are responsible for the majority of the insured natural catastrophe losses. This study analyzes the effectiveness of insurers hedging against the winter storm risk in terms of asset (catastrophe derivatives), liability (catastrophe bonds) and equity (catastrophe equity puts) risk management perspectives. The analysis results of the various financial performances show that our suggested hedging strategies are effective based on the long‐term positive profit and the improvement in the insolvency ratios. The conclusions of this study provide the insurers with less volatile premiums and more diversified portfolios under catastrophe risk management.

Date: 2018
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