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External impacts on the property-liability insurance cycle

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Author Info
Grace, Martin
Hotchkiss, Julie L.

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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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File URL: http://mpra.ub.uni-muenchen.de/9825/
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Publisher 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. 62(1995): pp. 738-754
Handle: RePEc:pra:mprapa:9825

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Related research
Keywords: combined ratio underwriting performance vector autoregression impulse response

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models

References listed on IDEAS
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  1. Smith, Michael L, 1989. "Investment Returns and Yields to Holders of Insurance," Journal of Business, University of Chicago Press, vol. 62(1), pages 81-98, January. [Downloadable!] (restricted)
  2. Harrington, Scott E & Danzon, Patricia M, 1994. "Price Cutting in Liability Insurance Markets," Journal of Business, University of Chicago Press, vol. 67(4), pages 511-38, October. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. James MacKinnon, 1990. "Critical Values for Cointegration Tests," University of California at San Diego, Economics Working Paper Series 90-4, Department of Economics, UC San Diego. [Downloadable!]
  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. Robert T. McGee, 1986. "The cycle in property/casualty insurance," Quarterly Review, Federal Reserve Bank of New York, issue Fall, pages 22-30.
  7. 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.
  8. 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.
  9. Claudia Goldin & Robert A. Margo, 1989. "Wages, Prices, and Labor Markets Before the Civil War," NBER Working Papers 3198, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Catherine Bruneau & Nadia Sghaier, 2008. "Les cycles de souscription de l’assurance non vie en France," EconomiX Working Papers 2008-6, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
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