THE%20SATELLITE%20INSURANCE%20MARKET%20AND%20UNDERWRITING%20CYCLES - PowerPoint PPT Presentation

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THE%20SATELLITE%20INSURANCE%20MARKET%20AND%20UNDERWRITING%20CYCLES

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THE SATELLITE INSURANCE MARKET AND UNDERWRITING CYCLES Piotr Manikowski, Poznan University of Economics, Poland Mary Weiss, Temple University ARIA Annual Meeting – PowerPoint PPT presentation

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Title: THE%20SATELLITE%20INSURANCE%20MARKET%20AND%20UNDERWRITING%20CYCLES


1
THE SATELLITE INSURANCE MARKET AND UNDERWRITING
CYCLES
  • Piotr Manikowski,
  • Poznan University of Economics, Poland
  • Mary Weiss,
  • Temple University

ARIA Annual Meeting Quebec City, August 5-8, 2007
2
Agenda
  • Introduction
  • Aims
  • The satellite insurance industry
  • Hypotheses
  • Data
  • Methodology
  • Results
  • Conclusions

3
Agenda
  • Introduction
  • Aims
  • The satellite insurance industry
  • Hypotheses
  • Data
  • Methodology
  • Results
  • Conclusions

4
The Underwriting Cycle
Source Kunstadter, 2005
5
Agenda
  • Introduction
  • Aims
  • The satellite insurance industry
  • Hypotheses
  • Data
  • Methodology
  • Results
  • Conclusions

6
Aims
  • Determine whether underwriting cycles exist in
    satellite insurance, and the length of the cycle
    if relevant.
  • Determine whether premium components
    (rates-on-line and annual industry-wide coverage
    availability or both) are cyclic.
  • Test two prominent underwriting cycle theories,
    the rational expectations/ institutional
    intervention hypothesis (Cummins and Outreville,
    1987) and the capacity constraint theory (Winter,
    1994) with satellite insurance industry data.

7
Agenda
  • Introduction
  • Aims
  • The satellite insurance industry
  • Hypotheses
  • Data
  • Methodology
  • Results
  • Conclusions

8
(No Transcript)
9
Agenda
  • Introduction
  • Aims
  • The satellite insurance industry
  • Hypotheses
  • Data
  • Methodology
  • Results
  • Conclusions

10
Hypotheses
  • Hypothesis 1a
  • Rate-on-line is positively associated with past
    losses.
  • Hypothesis 1b
  • The maximum amount of coverage available is
    negatively related to past losses.
  • Hypothesis 2
  • Satellite insurance rates are inversely related
    to the amount of satellite insurance coverage
    available.
  • Hypothesis 3
  • Satellite insurance rates and maximum available
    coverage are determined simultaneously.

Rational Expectations/ Institutional Intervention
Hypothesis
Capacity Constraint Theory
11
Agenda
  • Introduction
  • Aims
  • The satellite insurance industry
  • Hypotheses
  • Data
  • Methodology
  • Results
  • Conclusions

12
Data
  • Period 1968 2005
  • Type of data
  • Satellite insurance underwriting data claims,
    premiums, loss ratios, rates (minimum, maximum,
    average) and capacity (the sum of the maximum
    amounts that each underwriter is willing to
    provide on one satellite for launch and in-orbit
    insurance) number of launches average satellite
    value
  • Reinsurance data number of reinsurers, surplus
  • Macroeconomic data interest rates, stock prices

13
Agenda
  • Introduction
  • Aims
  • The satellite insurance industry
  • Hypotheses
  • Data
  • Methodology
  • Results
  • Conclusions

14
Underwriting Cycle Determination
  • existence of the underwriting cycle
  • a second-order autoregressive model proposed by
    Venezian (1985)
  • Pt a0 a1 Pt-1 a2 Pt-2 ?t,
  • tested variables the minimum and the average
    rate, capacity, and loss ratio
  • A cycle is present if a1 gt 0, a2 lt 0 and (a1)2
    4a2 lt 0
  • cycle periods

15
Hypothesis Testing
  • Regression models
  • Satellite insurance rate model
  • Satellite insurance capacity model

(-)
()
()
(-)
(/-)
16
Agenda
  • Introduction
  • Aims
  • The satellite insurance industry
  • Hypothesis
  • Data
  • Methodology
  • Results
  • Conclusions

17
Cycle Test Results for Satellite Insurance
(1968-2005)
18
?Min. Rate Regression Results (1972-2005)
19
? Capacity Regression Results
(1972-2005)
20
Agenda
  • Introduction
  • Aims
  • The satellite insurance industry
  • Hypothesis
  • Data
  • Methodology
  • Results
  • Conclusions

21
Conclusions (1)
  • Confirmation of the existence of an underwriting
    cycle in satellite insurance market (for minimum
    rate-on-line, average rate-on-line, and
    capacity).
  • Cycle periods are relatively long (10 to 25
    years) compared to the average six year cycle
    commonly cited in other studies.

22
Conclusions (2)
  • Confirmation of the rational expectations/
    institutional intervention hypothesis - a
    positive and significant relationship between the
    minimum-rate-on line and lagged loss ratios.
  • Confirmation of the capacity constraint theory -
    the minimum rate-on-line is negatively related to
    capacity (coverage availability).

23
Conclusions (3)
  • Because of the unique data used in this study we
    are able to determine that the maximum coverage
    available in the satellite insurance industry and
    the rate-on-line are determined simultaneously.
  • Further, our results suggests, that changes in
    capacity appear to be relatively more responsive
    to changes in the minimum rate than the other way
    around.

24
THANK YOU FOR YOUR ATTENTION
Contact mary.weiss_at_temple.edu piotr.manikowski_at_ae
.poznan.pl
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