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SOLVENCY REGULATION AND THE PROPERTY‐LIABILITY “INSURANCE CYCLE”
Author(s) -
WINTER RALPH A.
Publication year - 1991
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1991.tb00839.x
Subject(s) - solvency , economics , liability , revenue , constraint (computer aided design) , solvency ratio , microeconomics , actuarial science , monetary economics , finance , market liquidity , mechanical engineering , engineering
Fluctuations in the supply of property‐liability insurance may be exacerbated by regulation. To limit insolvencies, regulators constrain insurers against writing an excessive quantity of insurance relative to net worth. Revenue is used as a measure of aggregate quantity. In a competitive market with inelastic demand, a constraint on the ratio of revenue to net worth yields a catastrophe process for price dynamics. Indirect evidence supports the argument that the current form of solvency regulation is destabilizing.