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21 Dec 16 15:53

Managing the (re)insurance cycle is traditionally a primary task for (re)insurance firms.  The validity of the underwriting cycle itself has been questioned over the last two years. Still is it possible instead that new factors have entered the cycle model? Such new impacts may change the length and amplitude of the insurance cycle. What if we have not yet been able to collect enough data and evidence to recalibrate our expectations and retrain the cycle model? So is it possible that the insurance cycle is still functioning, while we simply have not had enough time to understand the new model? There are some new impact factor candidates, which have entered the cycle in its last two iterations. These are:
. Significant improvements in granularity and quality of insurance exposure data.
. Coupled with wider availability of high quality modeled catastrophe loss-cost data at high geo-spatial granularity. Both of which lead to a more accurate pure CAT price definition. Thus smoothing out the 'inadequate pricing curve' part of the cycle.
. Faster 'release of surplus capital' within firms, with a capital markets’ accounting structure.  Such firms typically offer securitized (re)insurance. More expedient internal capital release practices inevitably work to shorten the length of transition between lower amplitudes in the cycle.
. Growth of public - private partnerships reduces industry uncertainties and volatilities, and could serve as another stability mechanism.
The disruptions of InsureTech - IoT and telematics, ML and AI, are too recent to account for perturbations in the last five to eight years.  They will inevitably have their impacts on future iterations of the insurance cycle.
All of the above are supply side factors.  To fully explain changes and perturbations in the insurance cycle one needs to examine correspondingly new factors and shocks on the demand side of the model.  It may be worth to recount that other principal macro-economic cycles such as employment and interest rates have survived systemic shocks of various kinds over the last sixty years.  With too little temporal observation and data, and without a re-calibrated model to account for new demand and supply side factors, it may be too early to pronounce definitively on the insurance cycle.


Category: Climate/natural disasters: Disaster risk, Floods/storms

Location: Boston, MA, United States


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