Chapter 4: The insurance cycle

Question 1

Equilibrium

Answer 1

Supply = Demand

Question 2

Under supply

Answer 2

Not enough capacity to meet demand

Question 3

Over supply

Answer 3

More than enough supply to meet demand

Question 4

Reasons new insurers join

Answer 4

Demand > Supply

Insurers think they can make a profit

Question 5

Result of entering under-supplied market

Answer 5

• Supply increases and impacts price

Question 6

Reasons insurers leave the market

Answer 6

Result of suffering large losses

Question 7

Impact of insurers moving on market

Answer 7

If an over-supply is rebalanced, risk moving too far and supply too low, prices will go up

Price increases will lead to profits and then more insurers enter

Question 8

Hard market

Answer 8

Excess of demand vs supply, insurers have more ability to influence price

Question 9

Soft market

Answer 9

Excess supply vs demand, more difficult to increase prices

Question 10

Legal/political influence on Insurance cycle

Answer 10

• Law may change to make more or less insurance compulsory
• Law may change to extend liabilities for which which insured can be responsible for
• Ability to write in certain parts of the world may increase/decrease

Question 11

Impact of major events

Answer 11

Shortens insurance cycle as their is a sharp reduction in supply for certain markets