Underwriting Cycle

AAA

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 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.

RELATED TERMS
  1. Premium Income

    1. In investing, income that is earned through the sale of an ...
  2. Underwriting

    1. The process by which investment bankers raise investment capital ...
  3. Insurance Claim

    A formal request to an insurance company asking for a payment ...
  4. Economic Cycle

    The natural fluctuation of the economy between periods of expansion ...
  5. Insurance Underwriter

    A financial professional that evaluates the risks of insuring ...
  6. Policyholder Surplus

    The assets of a mutual insurance company minus its liabilities. ...
Related Articles
  1. Understanding Your Insurance Contract
    Insurance

    Understanding Your Insurance Contract

  2. The History Of Insurance
    Home & Auto

    The History Of Insurance

  3. How An Insurance Company Determines ...
    Home & Auto

    How An Insurance Company Determines ...

  4. Is Insurance Underwriting Right For ...
    Insurance

    Is Insurance Underwriting Right For ...

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center