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Nonlinear attractors and asymmetries between non-life insurance premiums and financial markets

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Abstract

Understanding how macroeconomic factors influence the underwriting cycle is a critical component of modelling cyclical movements in insurance dynamics. The purpose of this paper was to examine this issue to determine whether macroeconomic factors and non-life insurance premiums share a long-run attractor to which the system tends to return over time. We find strong evidence of linear cointegration in Canada, France, Japan, the UK, and the USA, with nonlinear attractors characterized by asymmetry in Canada, France, and the USA. The results suggest macroeconomic factors have important effects on insurance dynamics.

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Notes

  1. See SwissRe publication by Karl et al. (2012) and a summary at http://www.swissre.com/library/?searchByType=1086541&search=yes&searchByLanguage=851547&searchByCategory=1023505.

  2. See Diers et al. (2012), p. 322.

  3. We thank Fredj Jawadi for providing the exact data series used in their analysis and for helpful discussions.

  4. \(\hbox {MARS}^{\mathrm{TM}}\) is a registered trademark of Salford Systems; www.Salford-Systems.com.

  5. The inferences for Japan do not change when using the sample period examined by Jawadi et al. (2009). The Johansen test results found in Table 2 indicate that r \(=\) 2 for Japan while r \(=\) 1 for all other nations. The approach used to test for nonlinear cointegration in this paper does not allow for more than one cointegrating vector, which may be the cause of the conflicting result for Japan and is left as an area for future study.

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Authors and Affiliations

  1. School of Business, Queen’s University, Kingston, ON, Canada

    Peter Sephton

  2. Department of Economics, University of Manitoba, Winnipeg, MB, Canada

    Janelle Mann

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  1. Peter Sephton
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  2. Janelle Mann
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Correspondence to Peter Sephton.

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Sephton, P., Mann, J. Nonlinear attractors and asymmetries between non-life insurance premiums and financial markets. Empir Econ 49, 783–799 (2015). https://doi.org/10.1007/s00181-014-0894-7

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  • DOI: https://doi.org/10.1007/s00181-014-0894-7

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