underwriting cycle

The underwriting cycle refers to the pattern of profits in property and liability insurance, typically lasting five to seven years. It begins with high profits, leading some insurers to lower prices and become more lenient in underwriting to expand sales. This results in increased underwriting losses, which in turn cause profits to decline. In the next stage, insurers try to restore profits by raising rates and tightening underwriting standards, offering coverage only to the safest risks. This can make insurance difficult to obtain. Eventually, increased rates and reduced losses lead to restored profits, and the cycle repeats. This cycle causes insurance prices to fluctuate and affects the ease of purchasing coverage.1