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By Martin F. Grace, Robert W. Klein, Paul R. Kleindorfer, Michael R. Murray

1. the matter OF disaster hazard the danger of enormous losses from ordinary mess ups within the U.S. has considerably elevated in recent times, straining inner most assurance markets and growing complex difficulties for disaster-prone parts. the specter of mega-catastrophes due to excessive hurricanes or earthquakes extraordinary significant inhabitants facilities has dramatically altered the coverage surroundings. Estimates of possible greatest losses (PMLs) to insurers from a mega­ disaster notable the U.S. variety as much as $100 billion reckoning on the positioning and depth of the development (Applied coverage study, 2001).1 A serious catastrophe may have an important monetary influence at the (Cummins, Doherty, and Lo, 2002; coverage providers place of work, 1996a). Estimates of gross losses from the terrorist assault on September eleven, 2001 diversity from $30 billion to $50 billion, and the attack's impact on coverage markets underscores the necessity to comprehend the dynamics of the provision of and the call for for coverage opposed to severe occasions, together with usual failures. elevated disaster possibility poses tricky demanding situations for insurers, reinsurers, homeowners and public officers (Kleindorfer and Kunreuther, 1999). the elemental obstacle matters insurers' skill to address low-probability, high-consequence (LPHC) occasions, which generates a number of interrelated matters with recognize to how the danger of such occasions are 1 those possible greatest loss (PML) estimates are in response to a SOD-year "return" period.

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3(b», we see much greater stability among the leading insurer groups over the decade. Of the 20 leading groups in 2000, 14 were among the 20 leading groups in 1992. There were two notable additions to the top 20 for 2000: Citigroup (which acquired and, subsequently, spun-off Travelers) and Royal & Sun Alliance (the product of a merger). New York's greater stability is probably reflective of the longterm commitment of some insurers to the New York market. Upstate New York's lower exposure to catastrophe risk and, possibly, differences in the Chapter 2 24 state's regulatory climate, may have contributed to this commitment and stability.

3(b», we see much greater stability among the leading insurer groups over the decade. Of the 20 leading groups in 2000, 14 were among the 20 leading groups in 1992. There were two notable additions to the top 20 for 2000: Citigroup (which acquired and, subsequently, spun-off Travelers) and Royal & Sun Alliance (the product of a merger). New York's greater stability is probably reflective of the longterm commitment of some insurers to the New York market. Upstate New York's lower exposure to catastrophe risk and, possibly, differences in the Chapter 2 24 state's regulatory climate, may have contributed to this commitment and stability.

1% Comb. Ratio. 8% Avg. M. Best on net basis. M. 3 Florida Loss costs are the most important driver of insurers' overall profitability for most lines of insurance, including homeowners. Hence, analysts look 2. An Overview of Catastrophe Insurance Markets 35 closely at loss ratios as an indicator of rate or premium adequacy in a particular state and line. 7 track changes in loss ratios for the selected states and countrywide over the period 1990-2000. It is important to recognize that we are focusing on annual data in this analysis, which would be expected to be highly sensitive to catastrophes.

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