An exposure-based analysis of property-liability insurer stock values around Hurricane Andrew

It has been estimated that Hurricane Andrew caused more than $20 billion in damage in Florida and Louisiana in August 1992. Property-liability insurers will bear much of the loss payments to insureds. This study classifies the firms in the property-liability industry in terms of loss exposure and no loss exposure to determine if the market discriminated among insurers based on this: risk. The results indicate that Hurricane Andrew produced a significant negative stock price reaction on property-liability insurers with direct premiums written in Florida or Louisiana. Unexposed firms sustained no significant price response. Thus, the results support the hypothesis that the market efficiently interpreted the information generated by the hurricane and discriminated among property-liability insurers based on the existence and magnitude of insurance written.