Business cycles in insurance and reinsurance: the case of France, Germany and Switzerland

Purpose - This article aims to examine the existence of an underwriting cycle in property‐liability insurance for France, Germany and Switzerland (primary markets) and for the European reinsurance industry. It is also aimed to test how the two markets are related with each other in each country and how they influence each other. Design/methodology/approach - Loss ratio data for France, Germany and Switzerland are used for the recent period 1982‐2001 in connection with the price of reinsurance in Europe as well as the money market rate. To test for the existence of cycles and calculate their length auto‐regressive processes of second order are applied. Findings - There are cross‐country differences for the primary markets of the three countries. The reinsurance price index is highly cyclical with a calculated cycle length of almost nine years. It is shown that the reinsurance price index has a strong influence on the primary market loss ratios of the three countries studied. Originality/value - With the exception of two studies examining the impact of reinsurance on insurance prices and profits, there has been no research as yet to determine the role of reinsurance on the cyclical behavior of underwriting results. This gap is filled here by an empirical study on three European countries.