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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.

Suggested Citation

  • Grace, Martin & Hotchkiss, Julie L., 1995. "External impacts on the property-liability insurance cycle," MPRA Paper 9825, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:9825
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    References listed on IDEAS

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    More about this item

    Keywords

    combined ratio; underwriting performance; vector autoregression; impulse response;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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