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External Impacts on the Property-Liability Insurance Cycle

  • M. F. Grace
  • J. L. Hotchkiss

Traditionally, underwriting performance is considered to be a function of industry specific institutions. Using quarterly data from 1974 to 1990, we provide evidence of a long run linkage 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 linkage between the industry and the general economy using vector autoregression techniques and find that, although the property-liability 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 in the short run.

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Paper provided by EconWPA in its series Risk and Insurance with number 9407002.

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Date of creation: 14 Jul 1994
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Handle: RePEc:wpa:wuwpri:9407002
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  1. 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.
  2. 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.
  3. Anne Gron, 1994. "Capacity Constraints and Cycles in Property-Casualty Insurance Markets," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 110-127, Spring.
  4. 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.
  5. 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.
  6. 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.
  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. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, June.
  9. 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.
  10. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393, March.
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