Investopedia

Continue to Site »

Underwriting Cycle

Filed Under » , ,
Dictionary Says

Definition of 'Underwriting Cycle'

Fluctuations in the underwriting business over a period of time. A typical underwriting cycle spans a number of years, as market conditions for the underwriting business go from boom to bust and back to boom again.

At the beginning of the cycle, the underwriting business is soft due to increased competition and excess insurance capacity, as a result of which premiums are low. Subsequently, a natural disaster or other catastrophe that leads to a surge in insurance claims drives lesser-capitalized insurers out of business.

Decreased competition and lower insurance capacity lead to better underwriting conditions for the surviving insurers, enabling them to raise premiums and post solid earnings growth. This robust underwriting environment attracts more competitors, which gradually leads to more capacity and lower premiums, setting the stage for a repetition of the underwriting cycle.

Also known as the insurance cycle.

Investopedia Says

Investopedia explains 'Underwriting Cycle'

As with most business cycles, the underwriting cycle is a phenomenon that is very difficult to eliminate. In 2006, insurance giant Lloyd's of London identified managing this cycle as the top challenge facing the insurance industry and published a report by surveying more than 100 underwriters about industry issues. In response to their survey they were able to identify steps to manage the insurance cycle.

Unfortunately, the industry as a whole is not responding to the challenges the underwriting cycle brings. The underwriting cycle affects all types of insurance except life insurance, where there is enough information to minimize risk and reduce the effect of the underwriting cycle.

Articles Of Interest

  1.

    Is Insurance Underwriting Right For You?

    If you have excellent analytical skills and an eye for detail, this may be your calling.

  2. How An Insurance Company Determines Your Premiums

    Find out how insurers use credit history to build an insurance score and how it could affect your bottom line.

  3. Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.

  4. The History Of Insurance

    The first written policy appeared in Hammurabi's Code. Find out how it evolved from there.

  5. Life Insurance: Putting A Price On Peace Of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.

  6. Financial Career Options For Professionals

    Find out if spreading your wings to try a new career will make you soar or fall flat.

  7. Investing In IPO ETFs

    Learn the history, rules and risks of investing in IPO exchange-traded funds.

  8. Finding Undiscovered Stocks

    Wall Street tends to focus on large cap stocks, leaving other stocks under-followed and undervalued.

  9. Small Caps Boast Big Advantages

    Find out why little companies have the greatest potential for growth.

  10. How are share prices set?

    When a company goes public though an initial public offering (IPO), an investment bank evaluates the company's current and projected performance and health to determine the value of the IPO for ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  2. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  3. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  5. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  6. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
Trading Center