Gender Differences in Reserving Conservatism: Evidence from the U.S. Property-Liability Insurance Industry

56 Pages Posted: 27 Aug 2021

See all articles by Xin Che

Xin Che

California State University, Fullerton

Jianren Xu

University of North Texas

Date Written: January 6, 2021

Abstract

Given the rapidly growing industry-wide trends to promote diversity, we provide the first evidence that executive gender differences impact insurer corporate decisions by examining reserve management of property-liability insurers. We find that female CEOs are more conservative in estimating loss reserves. To establish causality, we use instrumental variable approaches and a difference-in-difference design based on a propensity-score matched sample. We find that reserving conservatism increases (decreases) following male-to-female (female-to-male) CEO transitions compared with male-to-male transitions. We further investigate the mechanism explaining the gender differences and find that female CEOs’ reserving conservatism is attributable to their less overconfidence rather than greater risk aversion. Our results also show that female CEOs are more likely to manage earnings when faced with certain incentives because of their greater loss aversion. Finally, we find that women’s leadership reduces firm insolvency risk and improves firm overall performance. Our study provides economic justifications for the industry-wide initiatives and is relevant to various stakeholders.

Keywords: Gender Differences; Loss Reserving Conservatism

JEL Classification: G22; G41

Suggested Citation

Che, Xin and Xu, Jianren, Gender Differences in Reserving Conservatism: Evidence from the U.S. Property-Liability Insurance Industry (January 6, 2021). Available at SSRN: https://ssrn.com/abstract=3893250 or http://dx.doi.org/10.2139/ssrn.3893250

Xin Che (Contact Author)

California State University, Fullerton ( email )

800 N State College St
Fullerton, CA 92831
United States

Jianren Xu

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

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