VOLATILITY OR CYCLICALITY: THE POLISH NON-LIFE INSURANCE MARKET

Year 2012, Volume: 4 Issue: 1, 191 - 200, 01.06.2012

Piotr Manıkowskı

Abstract

The underwriting cycle is defined as alternating periods of hard markets in which
insurance prices and insurer profitability are high and soft markets with low
insurance prices and low insurer profitability. Most of the research confirming the
existence of cycles relies on the time series behavior of published underwriting
information on loss ratios and underwriting profits. In the insurance literature it is
suggested that individual insurance markets (national, products markets) are
subject to cyclicality. The purpose of this research is to rigorously investigate
cyclicality of the Polish insurance market and assess its volatility formally. If a
cycle is found, we also investigate the cycle length. We analyzed loss ratio data
for the period 1991-2011 (i.e. after the economic transformation) for non-life
insurance market in Poland: aggregated and disaggregated into 18 insurance
classes. A second-order autoregressive model proposed by Venezian (1985) is
used to obtain the parameters for testing for the existence of the underwriting
cycle. The coefficient of variation (CV) and year to year changes in loss ratios are
used to assess volatility.

Keywords

underwriting (insurance) cycle, Polish insurance market, volatility, cyclicality

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