Abstract:*

We utilize unique disclosures in the insurance industry to examine whether actuary consultants affect opportunism within the claim loss reserve. Using a fixed-effects approach, we find that external actuaries have a significant effect on the opportunism in the claim loss reserve, approaching and at times exceeding the effect of the auditor. Next, with respect to actuary characteristics, we find a positive (negative) association between actuary permissiveness (actuary size) and opportunism in the claim loss reserve. In additional analyses, we find that the relation between actuary permissiveness and claim loss reserve opportunism is stronger when insurers have incentives to opportunistically manage the claim loss reserve. This relation continues to persist in the presence of high-quality auditors. Overall, we provide evidence suggesting that insurers are able to successfully use external actuaries to support opportunistic claim loss reserve estimates.

*Co-authored with Matthew S. Ege & Sarah B. Stuber (Texas A&M University)

General information:

Attendance to this seminar is possible by invitation only. Please send an e-mail to secbs-abs@uva.nl if your are interested in attending this seminar.