2013 Annual Meeting
ARIA Prize-Winning Paper Presentation: “Are Underwriting Cycles Real or Forecastable?” and 2013 Hachemeister Prize Presentation: "A Game-Theoretic Approach to Non-Life Insurance Markets."
Speculative efficiency often requires that future changes in a series cannot be forecast. In contrast, series with a cyclical component would seem to be forecastable with decreases, possibly relative to a trend, during the upper part of the cycle and increases during the lower part. On the basis of autoregressive model (AR) estimates, it is now considered that there is strong evidence of cycles in insurance underwriting performance as measured by the premium-to-loss ratio. Indeed, a large literature attempts to explain this documented cyclicality. First we show that the parameter estimates from AR models do not lead to any such inference and that in the contrary, the evidence in the data is consistent with no cyclicality at all. Second, we show that a number of different filters lead to the same conclusion, that there is no evidence of in-sample or out-of-sample predictability in annual insurance underwriting performance in the United States. This means that firm profitability in the property and casualty insurance industry is not cyclical; we only observe profitability going up or down with no meaningful pattern. It consequently follows that pricing in the property and casualty insurance industry is not incompatible with that of a competitive market.
Also Christophe Dutang of the 2013 Hachemeister Prize will present his and his co-authors' paper on "A Game-Theoretic Approach to Non-Life Insurance Markets."
In this paper, we formulate a noncooperative game to model a non-life insurance market. The aim is to analyze the effects of competition between insurers through different indicators: the market premium, the solvency level, the market share and the underwriting results. Resulting premium Nash equilibria are discussed and numerically illustrated.