Multiline insurers providing a broad mix of insurance policies benefit from natural diversification across their insurance risk portfolio. Underwriting margins and losses from one product line are unlikely to be exactly the same for another; however, these variables may still trend in similar directions. Changes in premiums, exposure rates and loss ratio projections reflect these relationships. However, estimating these relationships is as much art as science as history shows that dependency structures are not stable. Moreover, as investment choices are made, insurers are mindful of the liability profile and cash flow sensitivity considerations inherent in their underwriting operations.
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