How do underwriting and investment activities affect P&C insurers’ capital adjustments? Evidence from Canada

Alaa Guidara (), Van Son Lai, Min-Teh Yu () and Yang Zhao ()
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Alaa Guidara: Royal Roads University
Min-Teh Yu: Providence University and NCCU-RIRC
Yang Zhao: Nankai University

Review of Quantitative Finance and Accounting, 2025, vol. 64, issue 2, No 3, 575-594

Abstract: Abstract Using a sample of 83 Canadian property-casualty insurance companies from 1996 to 2010, we examine the impact of underwriting and investment choices on the insurers’ capital level and adjustment speed. An aggressive investment policy (risky equity investments) and a heavy reliance on reinsurance underwriting activities have the opposite effect on insurers’ capital level, though both lead to a slower capital adjustment speed. Meanwhile, insurers reshuffling their underwriting and investments significantly change their capital. With an integrated framework that considers underwriting cycles and regulatory pressure, insurers are slower in their capital adjustments in hard markets of the underwriting cycle, and higher regulatory pressure for an insurer moderates the positive relationship between capital level and adjustment speed.

Keywords: Underwriting and investment activities; Capital adjustment speed; Underwriting cycles; Property-casualty insurance; Reinsurance (search for similar items in EconPapers)
JEL-codes: C23 G22 G32 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11156-024-01314-z

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