Understanding Cycles and Shocks in the Property and Casualty Insurance Industry

Posted Date: March 2005

The experience of the property and casualty (P/C) insurance industry provides insights into the nature of financial shocks and cycles.

Key Findings

  • Shocks do not contribute to the underwriting cycle because they are random and, hence, taken as not being truly representative of the future of “business as usual”
  • Shocks do affect underwriting practices by initiating efforts to eliminate or mitigate a newly perceived risk from interfering with “business as usual”
  • Shocks in the P/C industry have been more psychological than financial due to the protection of diversification
  • Cycles in premium income and underwriting can be attributed to underwriting decisions driven by the anticipated profitability of writing P/C insurance