Ratemaking Methods and Profit Cycles in Property and Liability Insurance

Insurers and rating bureaus often use regression of past costs, or of loss ratios, on time as a way of estimating future rate requirements. A model of this process suggests that the rates set by such methods would create a quasi-cyclical pattern of underwriting profit margins. The details of the for...

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Bibliographic Details
Published in:The Journal of risk and insurance 1985-09, Vol.52 (3), p.477-500
Main Author: Venezian, Emilio C.
Format: Article
Language:English
Subjects:
Autocorrelation
Automobile insurance
Correlation analysis
Costs
Cycles
Factors
Forecasts
Hypotheses
Insurance industry
Insurance providers
Insurance regulation
Insurance underwriting
Liability insurance
Methods
Profit forecasting
Profit margins
Property liability insurance
Rate setting
Rating bureaus
Statistical analysis
Statistical variance
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Summary:Insurers and rating bureaus often use regression of past costs, or of loss ratios, on time as a way of estimating future rate requirements. A model of this process suggests that the rates set by such methods would create a quasi-cyclical pattern of underwriting profit margins. The details of the forecasting method determine the characteristics of the cylical pattern, so different lines may have different periods or different phases. Empirical data on major lines of property and liability insurance are consistent with the hypothesis that ratemaking methods contribute to the fluctuations of underwriting profit margins.
ISSN:0022-4367
1539-6975
DOI:10.2307/252782