The Research On Underwriting Cycle Of Motor Vehicle Insurance In China

Underwriting cycle is a characteristic of Property and Liability insurance industry, it is different for different lines of insurance. Motor vehicle insurance is the largest as far as the premium concerned, and is relatively more developed and the availability of data is easier. The thesis tries to make research on the motor vehicle insurance based on the data that can be available since the recovery of the P/C insurance in China in early 1980's.The purpose of the thesis is to discuss the questions about the existence of underwriting cycle in China, and if it does exit, try to analyze the causes and the effect of factors such as premium, loss affect it, and the position of U/W cycle now in order to implement more efficient means to mitigate the fluctuation of the U/W profit, and reduce the unnecessary loss. The thesis explores long time rule of the U/W profit in the line of automobile insurance, and gives suggestion as how to make long time plan to insurance company, government and investors.Based on this subject, the thesis mainly includes three sections. Firstly, the thesis tests the existence of U/W cycle in Chinese motor insurance through the analysis of the autocorrelation and partial autocorrelation and the test of two order autoregression. Secondly, after the approvement of the existence of the U/W cycle, the thesis construct a multiple-variables regression model to test the five hypothesizes for the causes of the U/W cycle, that is, capacity constraints, naive rate-making process, rational expectation/institutional intervention, perfect markets/rational expectations hypothesis, in order to determine what is the true causes of the U/W cycle in Chinese motor vehicle insurance. Thirdly, the thesis analyze the effect on the U/W cycle of the main variables such as loss, premium, loss ratio, and interest rate using the variance decomposition and the impulse function based on the VAR model. Based on the analysis of VAR model, the thesis forecasts the U/W cycle in motor vehicle insurance. The result will give suggestion as how to make long time plan to insurance company, government and investors.