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21 Dec 16 15:53

Managing the (re)insurance cycle is traditional 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? Such new impacts may change its length and amplitude. What if we have not yet collected enough data and evidence to recalibrate our expectations and retrain the cycle models? So is it possible that the insurance cycle is still valid, while we simply have not had enough time to understand its new fundamentals? There are some disruptor candidates, which have entered the cycle in its last two iterations:
[1] Significant improvements in granularity and quality of insurance exposure data.
[2] Coupled with wider availability of high quality modeled catastrophe loss-cost at high geo-spatial fidelity. Both of these lead to a more accurate pure CAT premium definition. Thus smoothing out the 'inadequate pricing' part of the cycle curve.
[3] Faster 'release of surplus capital' within firms, with capital markets’ accounting structure.  Such firms typically offer securitized (re)insurance. More expedient internal capital release practices work to shorten the length of transition between lower amplitudes in the cycle.
[4] Growth of public - private partnerships reduces industry uncertainties and volatilities, and could serve as another stability mechanism.
[5] The disruptions of InsureTech - IoT and Telematics, ML and AI may be too recent to account for perturbations in the last five to eight years.  They will inevitably have their impact on future iterations of the cycle.
All of the above are supply side factors.  To fully explain changes and perturbations in the insurance cycle one needs to examine corresponding new factors and shocks on the demand side of the equation.  It is worth to recall that other principal macro-economic cycles such as employment and interest rates have survived systemic and systematic shocks over the last sixty years.  With 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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