2025/06/23 by Niakh, Fallou, Charpentier, Arthur, Hillairet, Caroline +1
#FOS: Economics and business #Risk Management (q-fin.RM) #Theoretical Economics (econ.TH)
paper · doi:10.48550/arxiv.2506.18895
We consider an economy composed of different risk profile regions wishing to be hedged against a disaster risk using multi-region catastrophe insurance. Such catastrophic events inherently have a systemic component; we consider situations where the insurer faces a non-zero probability of insolvency. To protect the regions against the risk of the insurer's default, we introduce a public-private partnership between the government and the insurer. When a disaster generates losses exceeding the total capital of the insurer, the central government intervenes by implementing a taxation system to share the residual claims. In this study, we propose a theoretical framework for regional participation in collective risk-sharing through tax revenues by accounting for their disaster risk profiles and their economic status.