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External Impacts on the Property-Liability Insurance Cycle

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  • M. F. Grace
  • J. L. Hotchkiss

Abstract

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.

Suggested Citation

  • M. F. Grace & J. L. Hotchkiss, 1994. "External Impacts on the Property-Liability Insurance Cycle," Risk and Insurance 9407002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpri:9407002
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    References listed on IDEAS

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    Keywords

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    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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