VOLATILITYORCYCLICALITY:THE POLISHNON-LIFEINSURANCE MARKET

The underwriting cycle is defined as alternating periods of hard markets in whichinsurance prices and insurer profitability are high and soft markets with lowinsurance prices and low insurer profitability. Most of the research confirming theexistence of cycles relieson the time seriesbehaviorof published underwritinginformation on loss ratios and underwriting profits. In the insurance literature it issuggested that individual insurance markets (national, products markets) aresubject to cyclicality.The purpose of this research is to rigorously investigatecyclicality of the Polish insurance market and assess its volatility formally.If acycle is found, we also investigate the cycle length.We analyzedloss ratiodatafor the period 1991-2011 (i.e.aftertheeconomic transformation)for non-lifeinsurance market in Poland: aggregated and disaggregatedinto18 insuranceclasses.A second-order autoregressive model proposed by Venezian (1985) isused to obtain the parameters for testing for the existence of the underwritingcycle.The coefficient of variation (CV)and year to year changes in loss ratiosareused to assess volatility