Do Typhoons Cause Turbulence in Property-Liability Insurers’ Stock Prices?

Abstract

The aim of this paper is to clarify how natural disasters influence the stock prices of propertyliability insurance companies. Examining a series of typhoons that made landfall in Japan, this paper shows that the stock prices of property-liability insurers, on average, increase around typhoon landfalls. However, cross-sectional results indicate that specific insurer or typhoon characteristics can temper the increase. First, a property-liability insurer's stock price reacts more positively around typhoons of greater scale and more negatively around typhoons with longer intervals from the previous typhoon landfall, with longer times to landfall, or that cause more serious residential damage. Second, a property-liability insurer's stock price reacts according to its profitability or business structure. In addition, insurers with a larger capital buffer or of greater financial soundness are evaluated relatively higher around typhoon landfall since the deregulation of the insurance industry.