| The property-liability insurance industry has been characterized by an “insurance” cycle—periods of high prices and rationing followed by periods of expanding coverage and low prices. Early studies on this interesting phenomenon mainly focus on imperfections in the insurance market. After the liability insurance crisis in mid 1980s and negative shocks due to claims from natural catastrophes in early 1990s, the focus of the literature shifted to capital market imperfections. The essays in this dissertation shed light on insurance market cycles by studying the nature of insurance underwriting and financing.; The first essay studies the time series properties of insurance underwriting margins. It demonstrates that underwriting margins are stationary, thus suggesting that conventional regression methods can be used to model these margins. My second essay reexamines the relationship between underwriting margins and insurance capacity, incorporating the effects of loss reserve errors. My results are sensitive to the choice of proxies for underwriting margins and capacity. Moreover, capacity constraints cannot fully explain insurance underwriting cycles. |
