Failure to Share Natural Disaster Risk

102 Pages Posted: 23 Feb 2020 Last revised: 1 Dec 2022

See all articles by Tuomas Tomunen

Tuomas Tomunen

Boston College - Department of Finance

Date Written: November 1, 2022


I test whether asset prices reflect risk-exposures of financial intermediaries in a setting that is well suited to tackling concerns about omitted risk factors. I analyze catastrophe bonds whose cash flows are linked to occurrences of natural disasters and find that 71% of security-level variation in expected returns can be explained by a theoretically-motivated measure of intermediaries' marginal utility. Assuming natural disasters are independent of aggregate wealth, this result is inconsistent with any alternative explanation based on unobserved macroeconomic risks. I also show that the aggregate premium has recently decreased when the intermediaries' access to outside capital has improved.

Keywords: Risk Sharing, Intermediary Asset Pricing, Reinsurance, Catastrophe Risk, Securitization

JEL Classification: G12, G22

Suggested Citation

Tomunen, Tuomas, Failure to Share Natural Disaster Risk (November 1, 2022). Available at SSRN: or

Tuomas Tomunen (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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