fat tails tail dependence micro correlations can we insure these risks? cooke and kousky nsf#...
TRANSCRIPT
Fat Tails
Tail Dependence
Micro Correlations
Can we insure these risks?
Cooke and Kousky nsf# 0960865
These risks have big loss years: NFIP example
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
($20,000,000,000)
($15,000,000,000)
($10,000,000,000)
($5,000,000,000)
$0
$5,000,000,000
And even bigger losses can be expected
Insuring Risks is EXPENSIVE
Rates of Return on Net Worth for Homeowners Ins: US vs. Florida
Source: NAIC; 2005/6 US and FL estimates from the Insurance Information Institute.
94 95 96 97 98 99 00 01 02-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%US Florida
Measure of firm profitability
Rates of Return on Net Worth for Homeowners Ins: US vs. Florida
Source: NAIC; 2005/6 US and FL estimates from the Insurance Information Institute.
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05E 06E-800%
-700%
-600%
-500%
-400%
-300%
-200%
-100%
0%
100%US Florida
Averages: 1990 to 2006EUS HO Insurance = -0.7%FL HO Average = -38.1%
Andrew
4 Hurricanes
Wilma, Dennis, Katrina
MITIGATION (aka ‘get out of the way’)
Thin the tails
De-couple risks
Reduce insurance costs
Fat Tails
Tail Dependence
Micro Correlations
Cooke and Kousky nsf# 0960865
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