The effect of accounting for income tax uncertainty on tax‐deductible loss accruals for private insurers

Jiang CHENG*, Travis CHOW, Tzu‐Ting LIN, Jeffrey NG

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

3 Citations (Scopus)


Little is known about the effects of accounting regulation on private insurers. In this paper, we examine the uniqueness of the tax deductibility of insurers' loss accruals. We find that private insurers' overstatement of loss accruals in tax planning significantly decreases after adoption of the Statement of Statutory Accounting Principles (SSAP) 101, which mandates that insurance companies recognize and measure tax contingencies. Relative to public insurers' loss reserve errors, those of private insurers decrease by an estimated 0.8%–1.1% of total assets, implying a forfeited tax benefit of $1.79–$4.4 million per firm, per year. We also find that the decrease is mitigated for insurers with lower IRS monitoring or in states where the insurance industry comprises a greater part of state employment. Additionally, insurers with independent boards, or those with independent, external actuaries are more responsive to the adoption of SSAP 101.
Original languageEnglish
Pages (from-to)505-544
Number of pages40
JournalJournal of Risk and Insurance
Issue number2
Early online date26 Oct 2021
Publication statusPublished - Jun 2022

Bibliographical note

Funding Information:
The authors acknowledge financial support from Lingnan University, Singapore Management University, National Taiwan University, The University of Hong Kong, and The Hong Kong Polytechnic University. Tzu‐ting Lin is also a research fellow at the Risk and Insurance Research Center, National Chengchi University. For their helpful comments and suggestions, we thank Mary Barth, Jennifer Blouin, Robert Hills (discussant), Martin Grace, Jeffrey Hoopes, Bin Ke, Kelvin Law, Tyler Leverty, Xi Li (discussant), Tse‐Chun Lin, Yanju Liu, Martien Lubberink (discussant), Willie Reddic, Joanna Wu, Kenny Wunder (discussant), Qinlin Zhong, seminar participants at Shenzhen University, Southwest University of Finance and Economics, and National Taiwan University, and conference participants at the American Risk and Insurance Association Meeting, the 2019 Financial Accounting and Reporting Section Midyear Meeting, the 2019 UTS Australian Summer Accounting Conference, the 2019 International Conference of the Taiwan Finance Association (awarded the Fubon Best Paper Award), and the 2019 ABFER 7th Annual Conference. Thanks are also due to Joan T. Schmit (the editor), a senior editor, and two anonymous referees of the Journal who offered wide‐ranging, detailed and constructive comments for the improvement of the paper.

Publisher Copyright:
© 2021 American Risk and Insurance Association


  • SSAP 101
  • corporate taxation
  • insurance companies
  • loss reserve error

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