GAINING FROM LOSS - PROPERTY-LIABILITY INSURER STOCK VALUES IN THE AFTERMATH OF THE 1989 CALIFORNIA EARTHQUAKE

The October 17, 1989, California (Loma Prieta) earthquake led to substantial loss payments by insurers. This article is motivated by two opposing hypotheses regarding such catastrophic losses: that the rapid depletion of surplus accounts fostered by catastrophic events causes investors to discount insurance firm stock values, and that insurers benefit from an isolated catastrophic event because of subsequent increased demand. The latter hypothesis is supported by our results, which show that property-liability insurer stock values increased after the earthquake.