Insurance Business Cycles in Liability Insurance – The Case of the Polish Market

Abstract

Insurance business (underwriting) cycles are typical of non-life insurance. The cycle consists of phases of low and high prices of insurance products and indicators of financial condition. According to theory, underwriting cycles are long, in developed countries – even 8–10 years. On the Polish market, up to now, the cycle survey has been limited by the time horizon of available data (unified data since 1999). Currently, the scope of data is much longer, which allows to compare the results of earlier studies (from 2010 to 2013) with newer ones, to check whether the cycle lengths have reached values similar to observed in developed markets. Knowledge of these cycles can support the risk management process of an insurance company. The purpose of the research is to analyse the occurrence of underwriting cycles in liability insurance on the Polish market (cumulated data for insurance companies operating on the Polish market), as they are particularly sensitive to changes in legal regulations (numerous on the Polish market in 2007–2012). It will be examined whether the cycles occur and, if so, what their length is. The study will use the second-order autoregressive model AR(2). Model coefficients are estimated by least squares method. The study confirmed the presence of cycles for groups: 10 (MTPL insurance), 5–6-year cycles confirmed in most of the ratios analysed; 11 (third-party liability insurance, arising out of the possession and use of aircraft), no cycles found except combined ratio; 12 (insurance of civil liability for sea and inland navigation), cycles observed in claims, profitability and combined ratio; and 13 (general third-party liability insurance not included in groups 10–12) of the non-life insurance sector, cycles observed only in dynamics ratios.