An Analysis of Underwriting Cycles in Property-Liability Insurance Using Dynamic Panel Model
Publisher : Korea Insurance Research Institute
Research Area : Business Management
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Unlike previous studies which estimated an underwriting cycle using AR(2) time-series models with aggregated loss ratio data, this study measures the underwriting cycle using a dynamic panel model with the yearly loss ratio data of property-liability insurance companies. We also used the one-step and two-step GMM, developed by Arellano and Bond (1991), to estimate our model parameter values. We analyzed models using the loss ratio data of entire property-liability insurance companies and the each line of property-liability insurance, respectively. The results of our paper are as follow. In case of entire property-liability insurance, the coefficients of loss ratio to each of the time lag and are significant at 1% level. In addition, there exists an underwriting cycle and its length is 5.4~6.9 years. Also, economic growth rates and growth rate of interest rate have a significant negative effect on loss ratio while growth rate of CPI have a significant positive influence. Next, by line of property-liability insurance, the underwriting cycle length of long-term insurance is estimated to be 7.2 years. Moreover, macroeconomic factors have only a statistically significant effect on the loss ratio of auto insurance.
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