Underwriting Apophenia and Cryptids: Are Cycles Statistical Figments of Our Imagination?

Posted: 17 May 2013

See all articles by M. Martin Boyer

M. Martin Boyer

HEC Montreal - Department of Finance

Date Written: March 16, 2013

Abstract

The Lloyd’s 2007 Survey of Underwriters states that "for the third year running, managing the cycle emerged as the most important challenge for the industry, by some margin". The contention is of course that underwriting cycles exist in property and casualty insurance and are economically significant. Using a meta-analysis of published papers in the area of insurance economics, I show that the evidence in favor of underwriting cycles is misleading or even completely absent. There is in fact no statisical or economic support for the existence of underwriting cycles. This means that firm profitability in the property and casualty insurance industry is not cyclical; we only observe profitability going up or down with no meaningful pattern. It consequently follows that pricing in the property and casualty insurance industry is not incompatible with that of a competitive market.

Keywords: Property and liability insurance, underwriting profits, insurance pricing

JEL Classification: G22

Suggested Citation

Boyer, M. Martin, Underwriting Apophenia and Cryptids: Are Cycles Statistical Figments of Our Imagination? (March 16, 2013). CIRANO - Scientific Publications 2013s-07, Available at SSRN: https://ssrn.com/abstract=2265982 or http://dx.doi.org/10.2139/ssrn.2265982

M. Martin Boyer (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

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