P&C RAROC: A Catalyst for Improved Capital Management in the Property and Casualty Insurance Industry

1999 ◽  
Vol 1 (1) ◽  
pp. 52-69 ◽  
Author(s):  
PETER NAKADA ◽  
HEMANT SHAH ◽  
H. UGUR KOYLUOGLU ◽  
OLIVIER COLLIGNON
Keyword(s):  
Insurance Industry ◽  
Capital Management ◽  
Property And Casualty Insurance

The Association between Complexity and Managerial Discretion in the Property and Casualty Insurance Industry

2019 ◽  
Vol 09 (03) ◽  
pp. 1950008
Author(s):  
M. Martin Boyer ◽  
Elijah Brewer ◽  
Willie Reddic
Keyword(s):  
Insurance Industry ◽  
Managerial Discretion ◽  
Property And Casualty Insurance

This paper investigates whether the setting of loss reserves depends on an insurer’s complexity, which is defined by the number of business lines an insurer underwrites and on the insurer’s expertise in those lines. Our results suggest that insurers with higher levels of complexity tend to over-reserve. We also find that, as complexity increases, insurers that are financially weak and smooth their earnings, tend to under-reserve (i.e., bias their loss reserves upward). Further, we find that as complexity increases, insurers with high tax liabilities tend to bias their loss reserves downward (i.e., over-reserve), suggesting that tax strategies are important issues for insurers. An insurer’s degree of complexity is particularly salient when determining the extent to which loss reserves can be aggressively set.

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