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External impacts on the property-liability insurance cycle

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  • Grace, Martin
  • Hotchkiss, Julie L.

Abstract

Traditionally, underwriting performance is considered to be a function of industry-specific institutions. Using quarterly data from 1974 through 1990, we provide evidence of a long-run link between the general economy and the underwriting performance as measured by the combined ratio. Using cointegration techniques, we estimate the long-run relationship between the general economy as measured by real gross domestic product, the short-term interest rate, and inflation. We then estimate the short-run link between the industry and the general economy using vector auto-regression technniques and find that, although the property-liability insurance industry is linked to the long-run performance of the national economy, short-run shocks in economic variables have little effect on the combined ratio.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9825.

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Date of creation: 1995
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Publication status: Published in The Journal of Risk and Insurance No. 4.Vol. 6(1995): pp. 738-754
Handle: RePEc:pra:mprapa:9825

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Keywords: combined ratio; underwriting performance; vector autoregression; impulse response;

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References

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  1. Smith, Michael L, 1989. "Investment Returns and Yields to Holders of Insurance," The Journal of Business, University of Chicago Press, vol. 62(1), pages 81-98, January.
  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  3. Claudia Goldin & Robert A. Margo, 1992. "Wages, Prices, and Labor Markets before the Civil War," NBER Chapters, in: Strategic Factors in Nineteenth Century American Economic History: A Volume to Honor Robert W. Fogel, pages 67-104 National Bureau of Economic Research, Inc.
  4. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393, July.
  5. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  6. Janice L. Boucher, 1991. "Stationary representations, cointegration, and rational expectations with an application to the forward foreign exchange market," Working Paper 91-6, Federal Reserve Bank of Atlanta.
  7. Harrington, Scott E & Danzon, Patricia M, 1994. "Price Cutting in Liability Insurance Markets," The Journal of Business, University of Chicago Press, vol. 67(4), pages 511-38, October.
  8. Hall, S G, 1986. "An Application of the Granger & Engle Two-Step Estimation Procedure to United Kingdom Aggregate Wage Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 229-39, August.
  9. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x.
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Cited by:
  1. Denis Kessler, 2005. "La fin du cycle traditionnel en assurance et réassurance de dommages ?," Revue d'Économie Financière, Programme National Persée, vol. 80(3), pages 159-170.
  2. Feng Guo & Hung-Gay Fung & Ying Huang, 2009. "The Dynamic Impact of Macro Shocks on Insurance Premiums," Journal of Financial Services Research, Springer, vol. 35(3), pages 225-244, June.

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