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The Discretionary Use of Present Value-Based Measurements
By Property-Casualty Insurers

Research Paper No. 1428

44 Pages Posted: 14 Apr 1997  

Karen K. Nelson

Texas Christian University - Department of Accounting

Date Written: January 1997

Abstract

This study provides evidence that property-casualty insurers use accounting discretion to report a loss reserve accrual that captures relevant economic characteristics of the reserve's underlying cash flows. Specifically, tests of the relation between reported loss reserves and an actuarial estimate of expected future claim payments indicate that insurers discount loss reserves to present value even though industry accounting standards require recognition at nominal value. Additional findings indicate that the nondiscretionary (nominal value) and discretionary (time value discount) components of the loss reserve accrual are significantly associated with an external benchmark, insurance premiums, that reflects the present value of anticipated policy cash flows.

JEL Classification: G22, M41

Suggested Citation

Nelson, Karen K., The Discretionary Use of Present Value-Based Measurements By Property-Casualty Insurers (January 1997). Research Paper No. 1428. Available at SSRN: https://ssrn.com/abstract=2220 or http://dx.doi.org/10.2139/ssrn.2220

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)

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