Discussion of “The Characteristics and Valuation of Loss Reserves of Property Casualty Insurers”

Discussion of “The Characteristics and Valuation of Loss Reserves of Property Casualty Insurers” Review of Accounting Studies, 3, 97–103 (1998) ° c 1998 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands. Discussion of “The Characteristics and Valuation of Loss Reserves of Property Casualty Insurers” DAVID BURGSTAHLER dburg@u.washington.edu University of Washington, Graduate School of Business, Box 353200 Beaver and McNichols (1998) identify and exploit a rich source of data (the information contained in the loss reserve and payout triangles) about an accounting variable subject to managerial discretion (the loss reserve). These data are used to test hypotheses about the development of the loss reserve over time, about the relation between the loss reserve and realized cash payments, and about the relation of the loss reserve to the market value of equity. In the following, I provide comments about the specific hypothesis tests and interpretation of the results as well as discussion of additional issues to be considered in future research. I begin with an overview of some basic aspects of insurance accounting. Insurers collect premiums to cover risks for a policy period. The amounts and timing of the corresponding payments on loss claims are uncertain—payments occur during the policy year as well as in subsequent years. Figure 1 shows a matrix of claim http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “The Characteristics and Valuation of Loss Reserves of Property Casualty Insurers”

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Publisher
Springer Journals
Copyright
Copyright © 1998 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1009628417156
Publisher site
See Article on Publisher Site

Abstract

Review of Accounting Studies, 3, 97–103 (1998) ° c 1998 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands. Discussion of “The Characteristics and Valuation of Loss Reserves of Property Casualty Insurers” DAVID BURGSTAHLER dburg@u.washington.edu University of Washington, Graduate School of Business, Box 353200 Beaver and McNichols (1998) identify and exploit a rich source of data (the information contained in the loss reserve and payout triangles) about an accounting variable subject to managerial discretion (the loss reserve). These data are used to test hypotheses about the development of the loss reserve over time, about the relation between the loss reserve and realized cash payments, and about the relation of the loss reserve to the market value of equity. In the following, I provide comments about the specific hypothesis tests and interpretation of the results as well as discussion of additional issues to be considered in future research. I begin with an overview of some basic aspects of insurance accounting. Insurers collect premiums to cover risks for a policy period. The amounts and timing of the corresponding payments on loss claims are uncertain—payments occur during the policy year as well as in subsequent years. Figure 1 shows a matrix of claim

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 6, 2004

References

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