Firm-Level Data Analysis of the Effects of Net Investment Income on Underwriting Cycles: An Application of Simultaneous Equations
AbstractThis study tests two major theories of insurer underwriting cycles and extends the hypotheses to explain insurers’ reserving behaviors. By applying a simultaneous equations model to cross-sectional and time-series firm-level data, this study proposes that insurers’ net investment income can be used to explain both hypotheses regarding processes for establishing premiums and reserves. Our results confirm that the industry cycle phenomenon is reflected in individual firm dynamics. We find that net investment income is inversely related to both premiums and loss reserves, as expected, and we identify how the magnitudes of these effects correspond to the phases of the underwriting cycle. The results indicate that the effects are greatest in the hard market of underwriting cycles. Moreover, the yearly differential responses of premiums and reserves to net investment income are coincident with the formation of cycles.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Western Risk and Insurance Association in its journal Journal of Insurance Issues.
Volume (Year): 28 (2005)
Issue (Month): 1 ()
Contact details of provider:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (James Barrese).
If references are entirely missing, you can add them using this form.