Jan Janků, Ondřej Badura
Recent studies argue that more attention needs to be paid to the insurance sector in analyses of the financial sector, as it may be a significant factor in maintaining overall financial stability. In this paper, we analyze the relationship between market concentration and the underwriting profitability of the non-life insurance sector. We find that an increasing level of concentration over time leads, on average, to an increase in underwriting profitability (as proxied by the loss ratio). At high levels of concentration, however, this effect reverses, with rising concentration reducing underwriting profitability. The convex (U-shaped) nature of this relationship implies that the strongest incentives for collusive behavior arise when concentration is lowest. Additionally, we show that during a period of lower rates, weaker interest returns are offset by stronger underwriting results. However, this effect seems to be conditional on a high level of concentration.
JEL codes: C33, G22, G23
Keywords: Concentration, insurance sector, loss ratio, low interest rates, underwriting profitability
Issued: December 2021
Download: CNB WP No. 9/2021 (pdf, 873 kB)