Direct Measures of Reserve Management and Managerial Incentives

48 Pages Posted: 20 Jul 2017

See all articles by Shinichi Kamiya

Shinichi Kamiya

Nanyang Business School, Nanyang Technological University

Pingyi Lou

Fudan University

Date Written: July 1, 2017

Abstract

We propose a new reserve error measure net of loss development forecasting error using the most basic actuarial technique of estimating loss development. We argue that the proposed measure is better for capturing managerial discretion than the traditional reserve error measures due to its consistency with managerial decisions on loss reserving. Using a sample of US insurers from 2000 to 2010, we show that the proposed measure estimates much larger effects of tax incentives and earning management incentives than the traditional measures do, while the presence of underreserving by financially weak insurers is supported only by the proposed measure.

Keywords: loss reserve, reserve error, managerial discretion, insurance

JEL Classification: G22, M12, M41

Suggested Citation

Kamiya, Shinichi and Lou, Pingyi, Direct Measures of Reserve Management and Managerial Incentives (July 1, 2017). Available at SSRN: https://ssrn.com/abstract=3003834 or http://dx.doi.org/10.2139/ssrn.3003834

Shinichi Kamiya (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Pingyi Lou

Fudan University ( email )

600 Guoquan Rd
Shanghai, 200433
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
36
Abstract Views
977
PlumX Metrics