Business cycles in insurance and reinsurance: international diversification effects

Ursina Meier and J. Francois Outreville

Applied Financial Economics, 2010, vol. 20, issue 8, 659-668

Abstract: This article examines the existence of a cyclical pattern in property-liability insurance for the US over the recent period 1982 to 2001 in connection with the international price of reinsurance during the same period. The fluctuations in the price of reinsurance during the past 20 years have been documented recently in the business literature. If the price of reinsurance decreases, reinsurance becomes more affordable for insurance companies and this will be reflected in more capacity, price competition and finally an increase in the loss and combined ratio. Our study is using a price index developed recently for this period of time and based on Swiss Re's global book of business. We show that the reinsurance price index exhibits a significant cycle of almost nine years. The beginning of our observation period starting in 1982 coincides with previously found structural breaks in the Loss Ratio (LR) series. We find that inclusions of the reinsurance price and/or the Money Market (MM) rate do not contribute much to the explanation of the LR in property-liability insurance, whereas the LR does help to explain the fluctuations in the reinsurance price index. This supports our hypothesis of the international diversification effects of reinsurance operation and a proliferation of cycles or large insurance shocks through international reinsurance services.

Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/09603100903459931 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:20:y:2010:i:8:p:659-668

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603100903459931

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().