The Dynamics of Insurance Prices

Dominique Henriet, Nataliya Klimenko and Jean Rochet
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Nataliya Klimenko: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: We develop a continuous-time general-equilibrium model to rationalise the dynamics of insurance prices in a competitive insurance market with financial frictions. Insurance companies choose underwriting and financing policies to maximise shareholder value. The equilibrium price dynamics are explicit, which allows simple numerical simulations and generates testable implications. In particular, we find that the equilibrium price of insurance is (weakly) predictable and the insurance sector always realises positive expected profits. Moreover, rather than true cycles, insurance prices exhibit asymmetric reversals caused by the reflection of the aggregate capacity process at the dividend and recapitalisation boundaries.

Keywords: underwriting cycles; continuous-time model; financial frictions (search for similar items in EconPapers)
Date: 2016-03
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Citations: View citations in EconPapers (8)

Published in The Geneva Risk and Insurance Review, 2016, 41 (1), pp.2--18. ⟨10.1057/grir.2015.5⟩

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Journal Article: The Dynamics of Insurance Prices (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01447876

DOI: 10.1057/grir.2015.5

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