Assessment of Underwriting Cycles in the Insurance Industry through Time Series and Spectral Models

• Grant number: 25/04623-0
• Support Opportunities: Regular Research Grants
• Start date: August 01, 2025
• End date: July 31, 2027
• Field of knowledge: Applied Social Sciences - Administration - Administration of Specific Sectors
• Principal Investigator: João Vinícius de França Carvalho
• Grantee: João Vinícius de França Carvalho
• Host Institution: Faculdade de Economia, Administração, Contabilidade e Atuária (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil

Abstract

The underwriting of insurance plays a central role in insurers' risk management processes, determining which policies will be issued, under what conditions, and at what price. One of the most debated topics in the literature on the insurance industry is the existence of underwriting cycles, characterized by recurring patterns of stricter or more lenient underwriting policies, directly affecting issued premiums, insurers' profitability, and performance indicators such as loss ratios. However, while some studies support the existence of these cycles, others question their validity, making the topic controversial and methodologically challenging. The objective of this study is to investigate the existence, location, and longevity of underwriting cycles through a multi-resolution wavelet analysis, an innovative approach that overcomes the limitations of traditional models such as time series models and Fourier spectral analysis. To achieve this, time series data of the Loss Ratio Index - a classical measure of operational performance in the industry - will be analyzed for the insurance markets of the United States, the European Union, and Brazil, allowing for comparisons across different institutional contexts. This research is expected to have relevant implications both for academic literature and for insurers, regulators, and policymakers by offering a new perspective on the dynamics of the insurance market. After all, a detailed analysis of cycles enables a better understanding of pricing and underwriting patterns, supporting strategic decision-making and the development of more effective public policies to ensure the sector's stability. (AU)