Some insurance markets are affected by the well-known phenomenon of ?underwriting cycles,? made up of a tight phase during which premiums and profits increase while capacities decline, followed by a slacker period, characterized by lower prices and replenished capacities. It is difficult to explain these cycles within the classic framework of perfect financial markets. They imply a certain degree of predictability for premiums, a correlation between insurance company ROE and claims, which appears to contradict the principle of the no-arbitrage condition. We demonstrate that these properties can be perfectly well explained in a competitive equilibrium model with financial frictions. Our model extends the classic approach of ruin theory to a macroeconomic model where insurance premiums are endogenous and result from the balance between policy supply and demand. Companies determine their underwriting policies and stock issuance and buyback policies in a way calculated to maximize their stock share price. Insurance premiums are a deterministic function of the total market capitalization of all insurance companies. Our results explain why insurance premiums are predictable, as well as the correlation between ROE and claims. In fact, rather than genuine cycles, premiums and capacities oscillate between two extreme values with trends changing direction once one of these twovalues is attained. Our model illustrates the power of the new generation of macroeconomic models with financial frictions, introduced by Brunnermeier and Sannikov (2014), which can be successfully applied to the analysis of other important questions for insurance and reinsurance markets. Classification JEL: E10, G14, G22.

We develop a continuous-time general-equilibrium model to rationalise the dynamics of insurance prices in a competitive insurance market with financial frictions. Insurance companies choose underwriting and financing policies to maximise shareholder value. The equilibrium price dynamics are explicit, which allows simple numerical simulations and generates testable implications. In particular, we find that the equilibrium price of insurance is (weakly) predictable and the insurance sector always realises positive expected profits. Moreover, rather than true cycles, insurance prices exhibit asymmetric reversals caused by the reflection of the aggregate capacity process at the dividend and recapitalisation boundaries.

We compare the alternative approaches for regulating genetic information in the health insurance market when prevention measures are available. In the model, firms offer insurance contracts to consumers who are initially uninformed of their risk type but can obtain such information by performing a costless genetic test. A crucial ingredient of our analysis is that information has decision-making value since it allows for optimal choice of a self-insurance action (secondary prevention). We focus on the welfare properties of market equilibria obtained under the different regulatory schemes and, by using an intuitive graphical analysis, we rank them unambiguously. Our results show that Disclosure Duty weakly dominates the other regulatory schemes and that Strict Prohibition represents the worst regulatory approach.

The share of the public sector in health insurance provision varies enormously from country to country. It is larger in more redistributive countries. We provide a possible theoretical explanation for these facts: a public health insurance system, financed by taxes, can be an efficient means of redistribution, complementary to income taxation. This relies on the assumption of a negative correlation between income and morbidity. We examine the empirical validity of this assumption on macro data.