Do Underwriting Cycles Affect Property Casualty Insurer Asset Allocation? Stocks Versus Mutuals

Published in Journal of Insurance Regulation, 2011, 30:5-27

31 Pages Posted: 26 Apr 2007 Last revised: 10 Jan 2019

See all articles by Yayuan Ren

Yayuan Ren

Illinois State University-Department of Finance, Insurance and Law

Qixiang Sun

Beijing University

Tong Yu

University of Cincinnati - Department of Finance - Real Estate

Date Written: April 25, 2007

Abstract

This study performs a time series analysis to explore the effects of property casualty insurance underwriting cycles on stock and mutual insurers' asset risk taking. It is well documented that underwriting costs and insolvency risks faced by insurers are greater in hard markets while lower in soft markets. To achieve optimal risk portfolios, insurers may take on more asset risks in soft markets and discharge them in hard markets. Moreover, we expect stock companies would be more reactive to underwriting cycles than are mutual companies given greater risk-taking capacity and better managerial-incentive-control mechanism of the stock companies. Our result confirms these conjectures. While stock companies are found actively responding to the underwriting cycle, mutual companies appear to be indolent. Another interesting finding is that property casualty insurers, both mutual and stock companies, do not actively respond to capital market signals.

Keywords: underwriting cycles; asset allocation; ownership; insurance

JEL Classification: g11,g22

Suggested Citation

Ren, Yayuan and Sun, Qixiang and Yu, Tong, Do Underwriting Cycles Affect Property Casualty Insurer Asset Allocation? Stocks Versus Mutuals (April 25, 2007). Published in Journal of Insurance Regulation, 2011, 30:5-27, Available at SSRN: https://ssrn.com/abstract=982749 or http://dx.doi.org/10.2139/ssrn.982749

Yayuan Ren

Illinois State University-Department of Finance, Insurance and Law ( email )

Normal, IL
United States

Qixiang Sun

Beijing University ( email )

School of Economics
Beijing
China

Tong Yu (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
4019548606 (Phone)
4019548606 (Fax)

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