Using a windstorm simulation model developed by Applied Insurance Research, we analyze the effectiveness of catastrophic-loss index options in hedging hurricane losses for Florida insurers. The results suggest that insurers in the two largest size quartiles can hedge losses almost as effectively using contracts based on four intrastate indices as they can using contracts that settle on their own losses. Many insurers in the third largest size quartile also can hedge effectively using the intrastate indices, but most insurers in the smallest quartile would encounter significant basis risk. Hedging using a statewide loss index is effective only for the largest insurers.

This paper provides new information on the effects of organizational structure on efficiency by analyzing Spanish stock and mutual insurers over the period 1989–1997. We test the efficient structure hypothesis, which predicts that the market will sort organizational forms into market segments where they have comparative advantages, and the expense preference hypothesis, which predicts that mutuals will be less efficient than stocks. Technical, cost, and revenue frontiers are estimated using data envelopment analysis. The results indicate that stocks and mutuals are operating on separate production, cost, and revenue frontiers and thus represent distinct technologies. In cost and revenue efficiency, stocks of all sizes dominate mutuals in the production of stock output vectors, and smaller mutuals dominate stocks in the production of mutual output vectors. Larger mutuals are neither dominated by nor dominant over stocks in the cost and revenue comparisons. Thus, large mutuals appear to be vulnerable to competition from stock insurers in Spain. Overall, the results are consistent with the efficient structure hypothesis but are generally not consistent with the expense preference hypothesis.