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Insurer hedging amidst the interplay of black and green swans toward SDGs 3 and 7

Author

Listed:
  • Chen, Shi
  • Duan, Xiaoyu
  • Chiu, Shiu-Chieh
  • Lin, Jyh-Horng

Abstract

Amid regional conflicts and global warming, the interplay of catastrophic events (black swans) and sustainability issues (green swans) emerges, impacting sustainable insurance and environmental initiatives tied to Sustainable Development Goals (SDGs) 3 (Good Health and Well-being) and 7 (Affordable and Clean Energy). This paper develops a structure-break down-and-out option model to investigate insurer hedging strategies toward SDGs 3 and 7 in the context of sustainable insurance amidst the intertwined dance of black and green swans. There are several main results shown as follows. Enhancing hedging strategies bolsters an insurer's interest margin and mitigates default risk. As the impact of events like regional conflicts and global warming intensifies, the adverse effects of hedging on default risk become clearer, enhancing insurance stability. Both black and green swan events positively affect the insurer's interest margin and default risk. Strict capital regulations are vital for sustainable insurance, safeguarding policyholders and fostering stability during extreme events. In essence, employing robust hedging strategies and adhering to rigorous capital regulations within the framework of sustainable insurance, considering both black and green swan events, proves to be instrumental in advancing toward the achievement of SDGs 3 and 7.

Suggested Citation

  • Chen, Shi & Duan, Xiaoyu & Chiu, Shiu-Chieh & Lin, Jyh-Horng, 2024. "Insurer hedging amidst the interplay of black and green swans toward SDGs 3 and 7," Energy Economics, Elsevier, vol. 135(C).
    • Handle: RePEc:eee:eneeco:v:135:y:2024:i:c:s0140988324003657
    DOI: 10.1016/j.eneco.2024.107657
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    Keywords

    Black swan; Green swan; Insurer hedging; SDG 3; SDG 7;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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