Loss Reserve Error in the Brazilian Insurance Market: empirical evidence of the response to economic and tax regulations

• Autor(a) principal: Curvello, Rodrigo da Silva Santos
• Data de Publicação: 2018
• Outros Autores: Macedo, Marcelo Alvaro da Silva, Rodrigues, Adriano
• Tipo de documento: Artigo
• Idioma: eng; por
• Título da fonte: Revista Brasileira de Gestão de Negócios (Online)
• Texto Completo: https://rbgn.fecap.br/RBGN/article/view/2942
• topic: Loss reserve error. Insurance. Earnings management. Tax regulation. Economic regulation.; Erro de estimação. Provisões de sinistros. Gerenciamento de resultado. Regulação econômica. Regulação tributária.; Gerenciamento das provisões de sinistros

Purpose – This study aims to investigate whether insurance companiesoperating in the property and casualty lines manage their loss reservesin order to avoid further regulatory scrutiny and/or to reduce incometax values.Design/methodology/approach – This research is empirical-analyticaland employs econometric modeling of specific discretionary accrualsapplied to a sample of 50 insurers operating in the Brazilian marketanalyzed during the period from 2008 to 2013.Findings – We found evidence of managerial discretion in loss reserveswith the purpose of managing income tax for the period and also togive the impression of better solvency to both the insurance authorityand the market, thus avoiding further regulatory intervention andfavoring asymmetry. Moreover, the best performing companies tendto overestimate their loss reserves by reducing their profits to levelsthat do not alert the regulatory authority. This can be related to thepractice of income smoothing.Originality/value – It is the first study in the Brazilian insurancemarket that utilizes the loss reserve errors in a specific accruals modelto jointly study their impacts and three motivations for managers’opportunistic behavior in relation to claims provisions.