Several studies have examined the “gaining from loss” hypothesis, whereby insurance companies' market valuation increases after a natural disaster because the anticipated subsequent increase in demand for coverage is presumed by investors to outweigh the effects of capital outflow from insurance companies for claims payments. Previous studies investigating how stock markets assessed the impact of big earthquakes in the United States (e.g., the 1989 Loma Prieta earthquake) found that insurance firm values did indeed increase following such catastrophes. This is the first paper to test this hypothesis using a case outside the United States. Specifically, we investigate how the Japanese stock market reassessed domestic insurance firm values after the 1995 Hanshin–Awaji earthquake. Contrary to the findings based on U.S. earthquakes, we found negative stock price reactions. Another important finding is that Japanese stock markets were notably efficient in assessing information following the earthquake. J. Japan. Int. Econ., March 2002, 16(1) pp. 92–108. Graduate School of Economics, Nagoya University, Nagoya, 464-8601, Japan and School of Economics, Chukyo University, Nagoya, 466-8666, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: G-22, G-14.