Effects of Climate Risks on Non-Life Insurers' Resilience

The project is led by HEC Montréal. The academic leader is Georges Dionne, full Professor, Department of Finance, HEC Montréal.

Duration of the project: 2020-2023 (currently underway)

Effects of Climate Risks on Non-Life Insurers' Resilience

The project is led by HEC Montréal. The academic leader is Georges Dionne, full Professor, Department of Finance, HEC Montréal.

Duration of the project: 2020-2023 (currently underway)

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The objective of this project is to measure the causality effect of climate risk on insurance industry resilience, by studying the following three main empirical questions:

  • Do insurers exposed to climate risks have lower firm value or do they manage their risk efficiently? What is the industry capacity to pay for very large claims? 
  • How do catastrophic events affect the concentration of the industry in terms of mergers and acquisitions? Are climate risk events causal to mergers and acquisitions? 
  • What are the long-run benefits of mergers and acquisitions for acquirers and the industry? 

In this regard, the project research will:

  • Compare insurers’ capacity in different climate risk exposure zones;
  • Improve the methodologies of the merger and acquisition studies in the insurance literature as they do not introduce exogenous factors or use appropriate methodologies that isolate the impacts of natural catastrophes on the number and benefits of acquisitions;
  • Apply the simple popular event study approach in finance: recent economic studies show that this is not sufficient to obtain a clear demonstration of the desired causality links.

Although a variety of previous studies have examined the potential impacts of climate change on the insurance sector as well as industry responses, the particular focus of this project on mergers and acquisitions is original. Moreover, this focus is highly relevant given the expectation that larger insurance companies may have better options for diversification and risk spreading, which could imply that mergers and acquisitions are an effective response to enhance climate change resilience. Thus, the topic is of great interest and pertinent to the entire insurance industry.