Multivariate Analysis of Premium Dynamics in P&L Insurance

This article studies the dynamic relationship between premiums and losses on the U.S. property–casualty insurance market, accounting for the external impacts of GDP and interest rate. Compared to the existing literature, the present work innovates in that the dynamic relationships between premiums, losses, GDP, and interest rate are studied in a cointegration framework, single-equation and vector approach, involving the long- and short-run dynamics. The results suggest a stable long-run equilibrium between premiums, losses, and general economy. On short term, the premiums adjust quickly and significantly to the long-term disequilibrium and have a strong autoregressive behavior. External factors contribute to explain the dynamics of premiums.