9th Symposium on Finance, Banking, and Insurance
Universität Karlsruhe (TH), Germany, December 11 - 13, 2002

Abstract

Optimal Catastrophe Insurance with Uncorrelated Catastrophes

Henri Loubergé*
Harris Schlesinger**

*University of Geneva
**University of Alabama

This paper adopts a normative approach to catastrophe insurance. Itaddresses the question of how innovations in the design of insurancecontracts could help resolve the capacity gap in the provision of insuranceagainst natural catastrophes. It extends previous research with the sameapproach first by considering the case of "uncorrelated catastrophes", andsecond by combining the influence of catastrophes on claims amounts(severity risk) and on the probability of loss (frequency risk). We showthat the menu of contracts proposed in previous research, where only onetype of catastrophe is considered, is dominated by the menu of contractsproposed in this paper, taking into account the absence of correlationbetween catastrophes of different kinds.