Dynamic Capacity Adjustment of Property-Casualty Insurers: An Empirical Investigation

This paper examines the dynamic adjustment process of the capacity ratio for property-casualty insurers. The primary objective is to understand how insurers adjust their capacity ratios to some optimal level. An understanding of the dynamic adjustment process of insurers’ capacity ratios may prove beneficial to understanding underwriting cycles and in the use of solvency surveillance. Our empirical results indicate that the partial adjustment model describes the behavior of our sample of insurers well. In addition, we find the speed of adjustment is faster for larger insurers than for smaller insurers.