The title of this article is offered with apologies to James Carville and with a slight modification to the quote he made famous during the 1992 presidential campaign: "It's the economy, stupid." With numerous complicated strategic forces influencing a national election, back in 1992 it was the economy that ruled the day, just as it seems to be today.
In the professional lines arena of the insurance industry, numerous forces at work affect the market between the ebb and flow of the hard and soft cycles. Though hardly an exhaustive list, some factors influence these cycles:
o Interest rates: When interest rates rise, a carrier's investment income grows due to higher yields in the portfolio. This allows "breathing room" and underwriting profit margins can be reduced (or in some cases eliminated) because the higher interest rate yields allow investment return to pick up the profitability slack. Conversely, when interest rates fall, there also is an upside, as this increases the mark to market value of the bonds within the carrier's investment portfolio. For the purposes of this example, lower interest rates equal lower investment yields, which equal less breathing room on underwriting profitability.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- All PropertyCasualty360.com news coverage, best practices, and in-depth analysis.
- Educational webcasts, resources from industry leaders, and informative newsletters.
- Other award-winning websites including BenefitsPRO.com and ThinkAdvisor.com.
Already have an account? Sign In
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
