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How much catastrophe insurance fund needed in China for the ‘big one’? An estimation with comonotonicity method

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  • Zheng-wen Wang

    (Wuhan University)

  • Ling Tian

    (Wuhan University)

Abstract

Providing natural disaster risk insurance is one of the Chinese government’s concerns. Based on the necessary conditions for maximizing the capacity of property–liability insurance industry, a theoretical model of scale of catastrophe insurance fund is constructed which is correlated with the confidence level of the fund sponsor, policyholder’s surplus of industry, industry expected losses and the catastrophe losses faced by the industry. By analyzing the model, the sum of independent catastrophe insurance funds is found to require more capital than joint catastrophe insurance fund, and higher confidence level also results in higher scale of fund. Applying comonotonicity method, which is the first of its kind, we calculate the scale of catastrophe insurance funds. We also find the empirical results support the theoretical analysis.

Suggested Citation

  • Zheng-wen Wang & Ling Tian, 2016. "How much catastrophe insurance fund needed in China for the ‘big one’? An estimation with comonotonicity method," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 55-68, October.
    • Handle: RePEc:spr:nathaz:v:84:y:2016:i:1:d:10.1007_s11069-016-2406-x
    DOI: 10.1007/s11069-016-2406-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Comonotonicity method; Independent catastrophe insurance fund; Joint catastrophe insurance fund;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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