Rate Regulation, Competition, and Loss Reserve Discounting by Property-Casualty Insurers

46 Pages Posted: 13 Jan 2000

See all articles by Karen K. Nelson

Karen K. Nelson

Texas Christian University - Department of Accounting

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Abstract

This study examines whether the reported loss reserves of property-casualty insurers contain an implicit discount for the time value of money. Reporting the present value of loss reserves enables insurers to justify the competitive level of insurance premiums to regulators. The evidence indicates that there is a positive and significant discount rate implicit in the relation between reported loss reserves and expected future claim payments. Moreover, insurers subject to relatively stringent rate regulation discount to a greater extent than other insurers. The results also suggest that implicit discounting is distinct from solvency and tax motives to exercise discretion over the loss reserve.

JEL Classification: M41, M43, G22, G28

Suggested Citation

Nelson, Karen K., Rate Regulation, Competition, and Loss Reserve Discounting by Property-Casualty Insurers. Available at SSRN: https://ssrn.com/abstract=203888 or http://dx.doi.org/10.2139/ssrn.203888

Karen K. Nelson (Contact Author)

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-7567 (Phone)