What factor can cause fluctuations in the underwriting cycle?

Fluctuations in the underwriting cycle are significantly influenced by variations in loss experience and profitability. When underwriters assess risk and premium pricing, they rely heavily on loss experience data. If insurers experience higher than expected losses, it can lead to deteriorating profitability. This situation often prompts insurers to tighten underwriting standards, raise premiums, or reduce capacity, which in turn can drive the market into a hard phase of the underwriting cycle. Conversely, if loss experience improves and profitability increases, insurers may become more competitive, resulting in lower premiums and more lenient underwriting, thus moving the market into a softer phase. The relationship between loss experience and profitability is fundamental in shaping the dynamics of the underwriting cycle, affecting the availability and cost of insurance for consumers.