Understanding Cycles and Shocks in the Property and Casualty Insurance Industry

摘要

The experience of the property and casualty (P&C) insurance industry provides insights into the nature of financial shocks and cycles. The evidence indicates that: 1. Shocks do not contribute to the underwriting cycle because they are random and, hence, taken as not being truly representative of the future of "business as usual." Shocks do affect underwriting practices by initiating efforts to eliminate or mitigate a newly perceived risk from interfering with "business as usual." 2. Shocks in the P&C industry have been more psychological than financial due to the protection of diversification. 3. Cycles in premium income and underwriting can be attributed to underwriting decisions driven by the anticipated profitability of writing P&C insurance.