Published In

IMF Economic Review

Document Type

Article

Publication Date

6-22-2022

Subjects

Disasters, Earthquakes, Regression analysis, Reinsurance

Abstract

We examine disaster reinsurance from the perspective of international risk-sharing. We find that losses from disasters are shared internationally to a generally very limited extent, unlike what the theory of international risk-sharing suggests. We propose a new dataset of cross-border reinsurance payments for 93 disasters of 44 economies in 1982–2017. Combining these balance of payments data with industry data, we find that the lack of disaster risk-sharing through international reinsurance results from low participation in primary insurance as well as limited use of reinsurance. Regression analysis finds that countries with higher levels of economic or financial development tend to insure a larger share of disaster losses while proxies for disaster myopia are associated with less insurance. Regarding the share of insured losses that is internationally reinsured, small size and de facto financial integration tend to raise the reinsurance share, while high levels of external wealth and low foreign firm presence in insurance are associated with less reinsurance. Advanced economies with little fiscal space that provide ex-post government disaster insurance without international reinsurance could experience disaster risk morphing into financial risk.

Rights

Copyright (c) 2022 The Authors

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

DOI

10.1057/s41308-022-00172-w

Persistent Identifier

https://archives.pdx.edu/ds/psu/38135

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