Climate Change, Risk Management, and Firm Performance: Evidence from Property-Casualty Insurers in China

Abstract

We explore how climate risks affect the risk management and performance of property-casualty insurers. Our findings suggest that both short-term and long-term climate risks contribute to higher claim ratios at the city-insurer-year level. However, we do not find significant evidence that climate risks prompt insurers to improve their risk management practices, such as increasing reinsurance ratios or adjusting geographic business distribution. As a result, climate risks have a substantial negative impact on insurers' performance and increase their business risk. Insurers with smaller sizes, lower reinsurance ratios, geographically concentrated businesses, or lower levels of human capital are particularly affected by climate risks. The impact of climate risks on insurers is primarily driven by claim ratio, rather than operating expenses or investment returns.

Keywords: Climate Risks, Risk Management, Firm Performance, Property-casualty Insurers