Towards effective compensation for victims of natural catastrophes in developing countries

The Impact of Reinsurance

10.1093/acrefore/9780190224851.013.185 ◽

2021 ◽

Author(s):

Niels Viggo Haueter

Keyword(s):

Economic Growth ◽

Developing Countries ◽

Insurance Industry ◽

Natural Catastrophes ◽

Security Interest ◽

Environmental Deterioration ◽

Stabilizing Effect ◽

The 1960S ◽

The Impact

Reinsurance is perceived to have a stabilizing effect on the direct insurance industry and thereby on the economy overall. Yet, research into how exactly reinsurance impacts various areas is scarce. Traditionally, studying the impact of reinsurance used to be in the domain of actuaries; since the 1960s, they have tried to assess how different contract elements can provide what came to be called “optimal reinsurance.” In the 2010s, such research was intensified in developing countries with the aim to deploy reinsurance to support economic growth and security. Interest in reinsurance increased when the industry became more visible in the 1990s as the impact of natural catastrophes started being linked to a changing climate. Reinsurers emerged as spokespeople for climate-related issues, and the industry took a lead role in arguing in favor of implementing measures to reduce environmental deterioration. Reinsurers, it was argued, have a vested interest in managing the impact of natural catastrophes. This triggered discussions about the role of reinsurance overall and about how to assess its impact. In the wake of the financial crisis of 2007 and 2008, interest in reinsurance again surged, this time due to perceived systemic impacts.

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Natural Catastrophes and Sovereign Bond Prices

10.28945/3784 ◽

2017 ◽

Author(s):

Burkhard N Schrage

Keyword(s):

Developing Countries ◽

Natural Disasters ◽

Sovereign Debt ◽

Emerging Market ◽

Investment Decisions ◽

Future Research ◽

Bond Prices ◽

Sovereign Bond ◽

Natural Catastrophes ◽

Parametric Analyses

Aim/Purpose: This study investigates effects of natural catastrophes on the cost of sovereign debt in developing countries and discusses MNC financing strategies. Background: Over the last decades, natural disasters have increased in both number and severity. The combination of higher event frequency and intensity, coupled with fragile economic conditions in emerging market countries, may affect sovereign bond prices—particularly in developing countries—and consequently may have effects on the financing strategy of MNCs Methodology: Parametric and non-parametric analyses and event study method. Contribution: The current literature in International Business research has overlooked natural catastrophes as a source of heterogeneity across countries for investment decisions. We develop the theory and demonstrate empirically that both researchers and practitioners should take into account natural disasters when making internationalization decisions. Findings: We find that natural disasters have a material impact on the bond returns issued by developing country governments and consequently on MNCs’ host-country financing costs. Recommendations for Practitioners: Practitioners may consider the likelihood of natural disasters when making investment decisions in foreign countries. Recommendation for Researchers: Researchers may consider including natural disasters when in internationalization research; our research adds in particular a new dimension to the location choice literature. Impact on Society: Governments—in particular those in emerging markets—may rethink their strategies of how to “insure” themselves against natural disasters. Not being insured against these disasters result in negative secondary effects on economic development through higher cost of capital, and possible through lower FDI activities. Future Research: Future research can be done. There are several avenues: using our insights and applying them to governmental reinsurance strategies would be a worthwhile topic. On a different level, one could also investigate further the contingencies of our findings and extend the theoretical framework towards developed markets.

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