Insurance Rate Regulation, Management of the Loss Reserve and Pricing

• 成果类型: Article
• 署名作者: Narayanamoorthy, Gans; Page, John; Song, Bohan
• 署名单位: Tulane University; University of Alberta
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2020-0637
• 发表日期: 2023
• 页码: 407-434
• 关键词: PROPERTY; cartels; COMPETITION; earnings

摘要

Insurance pricing is subject to stricter regulation in some states than others. This cross-sectional variation, coupled with the occurrence of staggered deregulation in several states, enables a powerful test of the political cost hypothesis that managers manipulate accruals to mitigate adverse effects of rate regulation. We show that insurers understate their loss reserve accruals in more regulated regimes, a finding that contrasts with most prior studies documenting expense-increasing accruals in regulatory pricing settings like utilities. We theorize and find evidence that regulator-enabled cartel-like collective rate making leads to premiums being higher than the competitive level. Our results are consistent with accounting manipulation being used to justify deviating from these high rates and showcase a role for accounting in cartel enforcement.