Firm-Level Data Analysis of the Effects of Net Investment Income on Underwriting Cycles: An Application of Simultaneous Equations
This 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.
Volume (Year): 28 (2005)
Issue (Month): 1 ()
|Contact details of provider:|| |
When requesting a correction, please mention this item's handle: RePEc:wri:journl:v:28:y:2005:i:1:p:14-32. See general 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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.