The leverage and reinsurance effects on loss reserves in the United Kingdom's (UK) property-casualty insurance industry

Elena Veprauskaite, Michael Adams

Research output: Contribution to journalArticle

  • 1 Citations

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.
LanguageEnglish
Article number2
Pages373-399
Number of pages27
JournalAccounting and Business Research
Volume48
Issue number4
Early online date19 Dec 2017
DOIs
StatusPublished - 2018

Fingerprint

Reinsurance
Leverage
Insurance industry
Casualties
Insurer
Proportional reinsurance
Monitoring

Cite this

The leverage and reinsurance effects on loss reserves in the United Kingdom's (UK) property-casualty insurance industry. / Veprauskaite, Elena; Adams, Michael.

In: Accounting and Business Research , Vol. 48, No. 4, 2, 2018, p. 373-399.

Research output: Contribution to journalArticle

@article{284a9d937d4a4d30b5b73667eb20d24d,
title = "The leverage and reinsurance effects on loss reserves in the United Kingdom's (UK) property-casualty insurance industry",
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.",
author = "Elena Veprauskaite and Michael Adams",
year = "2018",
doi = "10.1080/00014788.2017.1404440",
language = "English",
volume = "48",
pages = "373--399",
journal = "Accounting and Business Research",
issn = "0001-4788",
publisher = "Routledge",
number = "4",

}

TY - JOUR

T1 - The leverage and reinsurance effects on loss reserves in the United Kingdom's (UK) property-casualty insurance industry

AU - Veprauskaite, Elena

AU - Adams, Michael

PY - 2018

Y1 - 2018

N2 - 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.

AB - 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.

U2 - 10.1080/00014788.2017.1404440

DO - 10.1080/00014788.2017.1404440

M3 - Article

VL - 48

SP - 373

EP - 399

JO - Accounting and Business Research

T2 - Accounting and Business Research

JF - Accounting and Business Research

SN - 0001-4788

IS - 4

M1 - 2

ER -