Do Underwriting Cycles Matter? An Analysis Based on Dynamic Financial Analysis

By Martin Eling, Sebastian D. Marek

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The aim of this paper is to analyze the impact of underwriting cycles on the risk and return of non-life insurance companies. We integrate underwriting cycles in a dynamic financial analysis framework using a stochastic process, specifically, the Ornstein-Uhlenbeck process, which is fitted to empirical data and used to analyze the impact of these cycles on risk and return. We find that underwriting cycles have a substantial influence on risk and return measures. Our results have implications for managers, regulators, and rating agencies that use such models in risk management, e.g., to determine risk-based capital requirements.

KEYWORDS: Non-life insurance, dynamic financial analysis, underwriting cycles, Ornstein-Uhlenbeck process, copulas


Eling, Martin, and Sebastian D. Marek, "Do Underwriting Cycles Matter? An Analysis Based on Dynamic Financial Analysis," Variance 6:2, 2012, pp. 131-142.

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Variance (ISSN 1940-6452) is a peer-reviewed journal published by the Casualty Actuarial Society to disseminate work of interest to casualty actuaries worldwide. The focus of Variance is original practical and theoretical research in casualty actuarial science. Significant survey or similar articles are also considered for publication. Membership in the Casualty Actuarial Society is not a prerequisite for submitting papers to the journal and submissions by non-CAS members is encouraged.