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Underwriting Cycle


The underwriting cycle is a pattern in the insurance industry where companies go through periods of stringent underwriting standards followed by periods of relaxed standards. This cycle is directly correlated with the economic situation; during a booming economy companies tend to loosen underwriting standards to write more policies, while in less favorable economic conditions the standards are tightened up. This cyclical pattern can impact pricing, availability of coverage, and companies’ profitability.


The phonetics of the keyword “Underwriting Cycle” is:ˈʌndəˌraɪtɪŋ Saɪkəl

Key Takeaways

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  1. Fluctuation in Market Conditions: Underwriting cycles are primarily influenced by the fluctuation in the insurance market conditions. These cycles are characterized by periods of high premium costs and decreased availability of coverage (hard market), followed by periods of low premium costs and increased availability (soft market).
  2. Impact on Pricing and Profit: Underwriting cycles have a significant impact on insurance companies’ pricing strategies and profitability. During a hard market, insurers can charge higher premiums leading to higher profits. However, during a soft market, due to an increased competition, insurers are forced to decrease their premium rates leading to potentially lower profits.
  3. Economic and Catastrophic Influences: External factors such as economic conditions or catastrophic events can heavily influence the underwriting cycle. Catastrophic events can lead to large claims, influencing insurers to tighten underwriting standards and increase rates. Conversely, in a stable economic environment with few claims, competition can drive down rates and standards, creating a soft market.


The Underwriting Cycle is a crucial concept in the business and finance world, particularly in the insurance industry, as it helps understand the fluctuations in the insurance market. This cycle refers to the periodic swings in the insurance market from soft market conditions, characterized by low premiums and lenient underwriting standards, to hard market conditions, where premiums are high, and underwriting criteria is strict. these changes occur due to the dynamic balance between the insurers’ desire to write policies, and their need to maintain profitable, low-risk portfolios. Understanding the Underwriting Cycle allows businesses to predict market trends, manage risk, strategize pricing, optimize profitability, and make informed investment decisions.


The underwriting cycle plays a vital role in shaping the landscape of the insurance industry and is used for gauging profitability of insurance companies over a period of time. It’s a phenomenon that pertains to the fluctuation in the profit margin between years due to ups and downs in premium rates influenced by overall market competition and economic factors. The primary purpose of the underwriting cycle is to avail a systematic framework to an insurer that aids in understanding, tracking and predicting the trends in the insurance marketplace, which, in turn, can guide pricing decisions, risk management strategies and profitability targets.Besides, the underwriting cycle also serves as an important indicator of market conditions and aids insurance companies in capital optimization strategies. When the insurance market is in a soft phase of the cycle, there’s intense competition, premiums rates dip and underwriting standards may be lowered. Conversely, in the hard phase, the insurance premiums rise due to a scarcity of underwriting capacity, resulting in higher profit margins for insurers. Each stage calls for strategic decisions relating to premium rate setting, policy terms, marketing, investment and reserves. Thus, the purpose of an underwriting cycle is instrumental in shaping business strategies in the insurance industry.


1. Insurance Industry: An underwriting cycle is a common phenomenon in the insurance industry. For example, during a “soft” market period, insurance companies might compete aggressively for business, resulting in lower premiums and more relax underwriting criteria. Conversely, following one or more catastrophic events like hurricanes or earthquakes, insurers might enter a “hard” market period, tightening underwriting standards and increasing premiums, as they try to recoup losses and mitigate future risk.2. Mortgage Industry: In the housing market, the 2008 financial crisis provides a clear example of an underwriting cycle. Leading up to the crisis, during the housing boom, underwriting standards were notably loose as banks and lenders approved high-risk mortgages. After the market crash, lenders significantly tightened their underwriting standards, making it much harder to qualify for a loan. 3. Bond Market: In the bond market, an underwriting cycle can be seen when interest rates fluctuate. When interest rates are low, companies may issue more bonds as it’s cheaper to borrow, leading underwriters to lower their standards to accommodate the increased demand. But when interest rates rise, companies are less likely to issue bonds, which prompts underwriters to be more selective and cautious, marking a new phase in the cycle.

Frequently Asked Questions(FAQ)

What is an Underwriting Cycle?

An Underwriting Cycle is a pattern in the insurance industry where insurers go through periods of stringent underwriting standards followed by periods of loose underwriting standards. This cycle impacts the profitability of the insurance industry.

How does the Underwriting Cycle work?

The cycle begins with insurers implementing strict underwriting standards, leading to higher premium rates and fewer risks insured. Over time, competition among insurers leads to a loosening of these standards, lower premiums, and more risk, until adverse selection and losses build up. Insurers then tighten the underwriting standards again to offset the losses, hence starting a new cycle.

How long does each Underwriting Cycle last?

The duration of each Underwriting Cycle can vary widely. It might last from a few years to more than a decade.

What factors influence the Underwriting Cycle?

Several factors can influence the underwriting cycle, including competition among insurers, market interest rates, economic conditions, regulatory changes, natural disasters, and technological advancements.

Does the Underwriting Cycle affect insurance company profits?

Yes, the Underwriting Cycle greatly impacts an insurance company’s profitability. When underwriting standards are loose, insurers tend to take on more risk and, eventually, more claims leading to lower profitability. When underwriting standards are strict, insurers take on less risk – consequently, there are fewer claims and potentially higher profitability.

Can the Underwriting Cycle impact policyholder premiums?

Yes, one key impact of the Underwriting Cycle is on policyholder premiums. When underwriting standards tighten and insurers assess risk more strictly, higher premiums typically result. Conversely, when underwriting standards are loosen, premiums often decline as competition increases among insurers.

Does the Underwriting Cycle affect all types of insurance in the same way?

No, the cycle can have different effects on different types of insurance. Market conditions, the nature of risks, and competition among insurers vary between different insurance lines, therefore impacting underwriting standards and cycles differently.

Related Finance Terms

  • Underwriting Profit/Loss: The profit or loss made by an insurance company from underwriting activities.
  • Insurance Premiums: The amount of money that an individual or business must pay for an insurance policy.
  • Risk Assessment: The process of identifying and analyzing potential issues that could negatively impact a business.
  • Claim Settlement: The process of agreeing upon and paying a claim by the insurance company.
  • Market Capacity: The maximum amount of underwriting risk that an insurer or reinsurer is capable of taking.

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