TITLE
"Firm-Level Data Analysis of the Effects of Net Investment Income on Underwriting Cycles: An Application of Simultaneous Equations," Journal of Insurance Issues, Min-Ming Wen and Patricia Born, Spring 2005, Vol. 28, No. 1, pp. 14-32. Full-text articles soon will be available through ABI/INFORM and EBSCO; click here for article PDF. 

ABSTRACT
This study tests two major theories of insurer underwriting cycles and
extends the hypotheses to explain insurers’ reserving behaviors. By applying a simultaneous
equations model to cross-sectional and time-series firm-level data, this study
proposes that insurers’ net investment income can be used to explain both hypotheses
regarding processes for establishing premiums and reserves. Our results confirm that
the industry cycle phenomenon is reflected in individual firm dynamics. We find that
net investment income is inversely related to both premiums and loss reserves, as
expected, and we identify how the magnitudes of these effects correspond to the phases
of the underwriting cycle. The results indicate that the effects are greatest in the hard
market of underwriting cycles. Moreover, the yearly differential responses of premiums
and reserves to net investment income are coincident with the formation of cycles.

[Keywords: underwriting cycles, investment income, simultaneous equations]