Solvency Regulation and the Property-Liability "Insurance Cycle."

Ralph Winter ()

Economic Inquiry, 1991, vol. 29, issue 3, 458-71

Abstract: Fluctuations in the supply of property-liability insurance may be exacerbated by regulation. To limit insolvencies, regulators constrain insurers against writing an excessive quantity of insurance relative to net worth. Revenue is used as a measure of aggregate quantity. In a competitive market with inelastic demand, a constraint on the ratio of revenue to net worth yields a catastrophe process for price dynamics. Indirect evidence supports the argument that the current form of solvency regulation is destabilizing. Copyright 1991 by Oxford University Press.

Date: 1991
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