Abstract
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 language | English |
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Pages (from-to) | 505-544 |
Number of pages | 40 |
Journal | Journal of Risk and Insurance |
Volume | 89 |
Issue number | 2 |
Early online date | 26 Oct 2021 |
DOIs | |
Publication status | Published - Jun 2022 |
Bibliographical note
Publisher Copyright:© 2021 American Risk and Insurance Association
Funding
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.
Keywords
- SSAP 101
- corporate taxation
- insurance companies
- loss reserve error