Study on the Underwriting Circle of Property-Liability Insurance Market under Competition
DOI:
https://doi.org/10.14738/assrj.45.2893Abstract
The paper models the competition between non-life insurers within the framework of game theory and solve the Nash equilibrium with software R. The dynamic game where insurers compete in multiple periods shows the characteristic of underwriting cycle, which has been tested in the non-life insurance markets of many countries. Whereas the theoretical explanation for the existence of underwriting cycle is not settled, the paper contributes an additional explanation. With 1000 simulations of the dynamic game, shows the . The length of the underwriting cycle is distributed in 7 to 8 years.References
Asborne, M. & Rubinstein, A., A course in game theory [M]. Massachusetts Institute of Technology, 2006.
Berger, Lawrence A., A Model for the Underwriting Cycle in Property-Liability Insurance Industry, Journal of Risk and Insurance, 1988(55): 298-306.
Cummins, J. David, Scott E. Harrington and Robert W. Klein, Cycles and Crises in Property-Casualty Insurance: Causes and Implications for Public Policy, Journal of Insurance Regulation, 1991: 50-93.
Dutang, C. A survey of GNE computation methods: theory and algorithms. Working paper, IRMA, 2012.
Dutang, C., Albrecher, H & Loisel, S., Competition among non-life insurers under solvency constraints: A game-theoretic approach [J]. European Journal of Operational Research, 2013(231): 702-711.
Dutang, C. GNE: Computation of Generalized Nash Equilibria. R package version0.97. 2012.
Kliger, D. & Levikson, B., Pricing insurance contracts-An economic viewpoint. Insurance: Mathematics and Economics, 1998(3): 243-249
Li, L. S., Empirical analysis on the underwriting cycle of Chinese property-liability insurance industry based on Cummins-Outreville model, Insurance Studies, 2011(2): 40-47.
Polborn, M. K., A model of an oligopoly in an insurance market [J]. The Geneva Paper on Risk and Insurance Theory, 1998(1): 41-48.
Powers, M. R., & Shubik, M., On the tradeoff between the law of large numbers and oligopoly insurance [J]. Insurance: Mathematics and Economics, 1998(2): 141-156.
Powers, M. R., & Shubik, M., A “square-root rule” for reinsurance. The Journal of Risk Finance, 2006(2): 101-107.
Rees. R., Gravelle, H. & Wambach, A., Regulation of insurance markets [J]. The Geneva Paper on Risk and insurance Theory, 1999(1): 55-68.
Taylor, G. C., Underwriting Strategy in a competitive insurance environment [J]. Insurance: Mathematics and Economics, 1986(1): 59-77.
Taylor, G. C., Expenses and underwriting Strategy in competition [J]. Insurance: Mathematics and Economics, 1987(4): 275-287.
Zorich, V. Mathematical analysis I. Universitext (Vol. 1). Springer, 2000.
Cummins, J.D. and Outreville, J.F. (1987), An international analysis of underwriting cycles, Journal of Risk and Insurance, 1987(54): 246-62.
Venezian, E.C., Ratemaking Methods and Profit Cycles in Property and Liability Insurance, Journal of Risk and Insurance, 1986(52): 477-500.
Doherty, N.A. and Kang, H.B. (1988), Interest rates and insurance price cycles, Journal of Banking and Finance, 1988(12): 199-214.
Grace, M.F. and Hotchkiss, J.L., External impacts on property-liability insurance cycle, Journal of Risk and Insurance, 1995(62): 738-54.
Meier, U.B., Multi-national underwriting cycles in property-liability insurance, Part I: some theory and first empirical results, Journal of Risk Finance, 2006(7): 64-82.
Myers, S. S. and R. A. Cohn, “A Discounted Cash Flow Approach to Property-Liability Insurance Rate Regulation,” in Fair Rates of Return in Property-Liability Insurance, eds. J. D. Cummins and S. E. and Harrington, pp. 55–77, Dordrecht: Kluwer Nijhoff Publishing, 1987.
Feldblum, S., Underwriting cycles and business strategies, Proceedings of the Casualty Actuarial Society, LXXXVIII, 2001: 175-235.
Niehaus, G. and Terry, A., Evidence on the Time Series Properties of Insurance Premiums and Causes of the Underwriting Cycle: New Support for the Capital Market Imperfection Hypothesis. The Journal of Risk and Insurnace, 1993(60): 466-479.
Fields, J.A. and Venezian, E., Interest Rates and Profit Cycles: a Disaggregated Approach, Journal of Risk and Insurance, 1989(56): 312-319.
Radach, Floyd R., A Strategy for Cycle Management, Best’s Review, 1988: 48-50
Wang, Y.P., Scale and Scope Economies of Chinese Property-liability Industry, Insurance Studies, 2016(12): 5-14.
Wilson, William C., The Underwriting Cycle and Investment Income, CPCU Journal, 1981(34): 225-232.
Wu, J. & Su, F., Cyclicity of nonlife insurance products and a comparative analysis of influencing factors—based on insurance cycles and underwriting cycle theory, Insurance Studies, 2014(3): 30-41.
Downloads
Published
How to Cite
Issue
Section
License
Authors wishing to include figures, tables, or text passages that have already been published elsewhere are required to obtain permission from the copyright owner(s) for both the print and online format and to include evidence that such permission has been granted when submitting their papers. Any material received without such evidence will be assumed to originate from the authors.
