EXTERNAL IMPACTS ON THE PROPERTY-LIABILITY INSURANCE CYCLE

Traditionally, underwriting performance is considered to be a function of industry-specific institutions. Using quarterly data from 1974 thr ough 1990, we provide evidence of a long-run link between the general economy and the underwriting performance as measured by the combined r atio. Using cointegration techniques, we estimate the long-run relatio nship between the general economy as measured by real gross domestic p roduct, the short-term interest rate, and inflation. We then estimate the short-run link between the industry and the general economy using vector autoregression techniques and find that, although the property- liability insurance industry is linked to the long-run performance of the national economy, short-run shocks in economic variables have litt le effect on the combined ratio.