Asymmetric adjustment of insurance profits: evidence from the U.S. non-life insurance markets

Abstract

Insurance profits in non-life insurance markets display a large fluctuation that may make it hard for insurance companies to control their operating volatility. By taking into account asymmetries in dynamics of insurance profits, this paper provides empirical evidence of the visualised cycles in insurance markets and relevant underwriting strategies of insurance companies. The results hint at the possible existence of overconfidence in underwriting activities when the underwriting result turns bad. Compared with the whole insurance industry, insurance companies engage more speculative behaviour in underwriting activities on the general liability insurance. For regulation purposes, the government should maintain more disciplined underwriting policies of insurance companies in different insurance lines in order to avoid irrational pricing strategies and improve the economic efficiency of insurance supply.