The Effect of External Monitoring on Conservative Financial Reporting in the Property-Casualty Insurance Industry
研究州监管机构的财务检查如何促使财产责任保险公司在报告损失准备金时更加稳健，从而保护保单持有人利益。
SUMMARY When property-casualty (P&C) insurers understate their loss reserves, they increase the appearance of solvency. Understating loss reserves can lead to inadequate loss protection for policyholders. This paper investigates the effect of external monitoring by state regulators on financial reporting by P&C insurers. Specifically, we analyze whether a regulatory financial examination of P&C insurers, as mandated and conducted by state law, results in reporting more conservative loss reserve estimates. We find that P&C insurers report more conservative loss reserve estimates during and following a regulatory financial examination. Whereas past studies use audits as external monitoring events around which fluctuations in loss reserves are observed, we focus on regulatory financial examinations as external monitoring events that mitigate the use of loss reserves to manage perceptions of company health. JEL Classifications: G22; H79; M42; M48.