Reinsurance Purchases, Contingent Commission Payments and Insurer Reserve Estimation
AbstractPrior studies on errors in reserve estimation suggest that insurers manage loss reserves to achieve corporate goals, including tax minimisation and income smoothing. Analysing U.S. property and casualty insurance industry data, we find a relationship between reserve errors and the purchase of reinsurance. A relationship is also found between reserve errors and the payment of contingent commissions. Since reserve errors may be costly in both instances, insurers who purchase reinsurance and those who pay contingent commissions may have a greater incentive to reserve accurately than other insurers. We find that in these cases insurers report smaller over-reserving errors.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Issues and Practice.
Volume (Year): 37 (2012)
Issue (Month): 3 (July)
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Web page: http://www.palgrave-journals.com/
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
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