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How do underwriting and investment activities affect P&C insurers’ capital adjustments? Evidence from Canada

Author

Listed:
  • Alaa Guidara

    (Royal Roads University)

  • Van Son Lai

    (Laval University)

  • Min-Teh Yu

    (Providence University and NCCU-RIRC)

  • Yang Zhao

    (Nankai University)

Abstract

Using a sample of 83 Canadian property-casualty insurance companies from 1996 to 2010, we examine the impact of underwriting and investment choices on the insurers’ capital level and adjustment speed. An aggressive investment policy (risky equity investments) and a heavy reliance on reinsurance underwriting activities have the opposite effect on insurers’ capital level, though both lead to a slower capital adjustment speed. Meanwhile, insurers reshuffling their underwriting and investments significantly change their capital. With an integrated framework that considers underwriting cycles and regulatory pressure, insurers are slower in their capital adjustments in hard markets of the underwriting cycle, and higher regulatory pressure for an insurer moderates the positive relationship between capital level and adjustment speed.

Suggested Citation

  • Alaa Guidara & Van Son Lai & Min-Teh Yu & Yang Zhao, 2025. "How do underwriting and investment activities affect P&C insurers’ capital adjustments? Evidence from Canada," Review of Quantitative Finance and Accounting, Springer, vol. 64(2), pages 575-594, February.
    • Handle: RePEc:kap:rqfnac:v:64:y:2025:i:2:d:10.1007_s11156-024-01314-z
    DOI: 10.1007/s11156-024-01314-z
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    More about this item

    Keywords

    Underwriting and investment activities; Capital adjustment speed; Underwriting cycles; Property-casualty insurance; Reinsurance;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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