Leverage and reinsurance effects on loss reserves in the United Kingdom’s property–casualty insurance industry

Elena Veprauskaite, Michael Adams

Research output: Contribution to journalArticle

2 Citations (Scopus)
43 Downloads (Pure)

Abstract

We examine the relation between loss reserving errors, leverage and reinsurance in the UK's property-casualty insurance industry. We find that financially weak insurers under-estimate reserves to reduce leverage, and so pre-empt costly regulatory scrutiny. However, at very high leverage, insurers over-reserve, suggesting a non-linear relation between leverage and reserving policy. We also investigate whether monitoring by reinsurers reduces reserving errors, and find that highly reinsured insurers are less likely to make loss reserve errors. However, the use of proportional reinsurance does not affect loss reserve accuracy.
Original languageEnglish
Article number2
Pages (from-to)373-399
Number of pages27
JournalAccounting and Business Research
Volume48
Issue number4
Early online date19 Dec 2017
DOIs
Publication statusPublished - 7 Jun 2018

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Keywords

  • UK
  • insurance
  • leverage
  • loss reserves
  • reinsurance

ASJC Scopus subject areas

  • Accounting

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