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Journal Articles The Geneva Risk and Insurance Review Year : 2016

The Dynamics of Insurance Prices

Abstract

We develop a continuous-time general-equilibrium model to rationalise the dynamics of insurance prices in a competitive insurance market with financial frictions. Insurance companies choose underwriting and financing policies to maximise shareholder value. The equilibrium price dynamics are explicit, which allows simple numerical simulations and generates testable implications. In particular, we find that the equilibrium price of insurance is (weakly) predictable and the insurance sector always realises positive expected profits. Moreover, rather than true cycles, insurance prices exhibit asymmetric reversals caused by the reflection of the aggregate capacity process at the dividend and recapitalisation boundaries.

Dates and versions

hal-01447876 , version 1 (27-01-2017)

Identifiers

Cite

Dominique Henriet, Nataliya Klimenko, Jean-Charles Rochet. The Dynamics of Insurance Prices. The Geneva Risk and Insurance Review, 2016, 41 (1), pp.2--18. ⟨10.1057/grir.2015.5⟩. ⟨hal-01447876⟩
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