November 13, 2013
At the Annual Meeting of the Casualty Actuarial Society (CAS), held from November 3 to 6 in Minneapolis, in the United States, three Full Professors of Finance – Martin Boyer, Éric Jacquier and Simon van Norden – won the Society’s Best Paper Award on the Theory of Risk for 2012. Their paper, entitled “Are Underwriting Cycles Real and Forecastable?”, was published in the Journal of Risk and Insurance.
From left to right : Martin Boyer and Simon van Norden
The winning paper debunks much of the literature looking at the presence of cycles in the profitability of property and casualty insurance companies. Weak-form speculative efficiency often requires that future changes in a series cannot be forecast solely from its own history. In contrast, series with a cyclical component would seem to be partly forecastable, with decreases during the upper part of the cycle and increases during the lower part. On the basis of autoregressive (AR) model estimates, it is considered that there is strong evidence of cycles in insurance underwriting performance as measured by the premium-loss ratio. In their paper, the authors show that parameter estimates from AR models do not lead to any such inference and that, to the contrary, the evidence in the data is consistent with no cyclicality at all. They then show that a number of different filters lead to the same conclusion, i.e. that there is no evidence of in-sample or out-of-sample predictability in annual insurance underwriting performance in the United States.
In North America, the CAS is one of two organizations offering certification systems leading to the title of actuary.