In-House Provision of Corporate Services: The Case of Property-Casualty Insurers and In-House Actuarial Loss Reserve Certification

• Published in: Tai Da Guan Li Lun Cong Vol. 34; no. 1; pp. 91 - 132
• Main Authors: Weiss, Mary A, Cheng, Jiang, Lin, Tzuting
• Format: Journal Article
• Language: English
• Published: Taiwan 國立臺灣大學管理學院 01.04.2024; National Taiwan University Press, NTU College of Management
• Subjects: Financial reporting; Loss reserves; Property & casualty insurance; Public Company Accounting Reform & Investor Protection Act 2002-US; property-casualty insurance; Sarbanes-Oxley Act; 產物保險; in-house actuary; 內部精算師; 沙賓法案
• ISSN: 1018-1601; 2410-2490
• DOI: 10.6226/NTUMR.202404_34(1).0003

The purpose of this research is to investigate the relationship between managerial discretion in U.S. Property-Casualty (P-C) accounting reports and the use of an in-house or Appointed Actuary to certify loss reserves; we use loss reserving errors as measures of managerial discretion. The results indicate that it is important to distinguish between healthy and weak insurers in the analysis because their incentives to earnings management are different. Also, using an in-house or Appointed Actuary to certify loss reserves is associated with more under-reserving than when an external actuary is used for both weak and healthy insurers, although the degree of under-reserving is greater for weak insurers. Finally, the enactment of the Sarbanes-Oxley Act (SOX) leads to more conservative financial reporting for weak publicly-traded P-C insurers using external actuaries but not for weak publicly-traded P-C insurers using in-house actuaries.