The effect of SSAP 101 on loss provisioning by property-casualty insurers

• Main Authors: CHENG, Jiang, CHOW, Travis K., LIN, Tzu-Ting, NG, Tee Yong Jeffrey
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Loss provisions; Corporate taxation; Insurance companies; SSAP 101; Accounting
• Online Access: https://ink.library.smu.edu.sg/soa_research/1791; https://ink.library.smu.edu.sg/context/soa_research/article/2818/viewcontent/AC19P5011_The_Effect_of_SSAP_101_on_Loss_Provisioning_by_Property_Casualty_Insurers.pdf
• Institution: Singapore Management University

This paper examines whether the adoption of the Statement of Statutory AccountingPrinciples (SSAP) 101, a new accounting standard that significantly limits management’sdiscretion in both the recognition and measurement of tax contingencies, affects the lossprovisions of property-casualty (PC) insurers. We find that PC insurers significantly reducetheir loss provisions after SSAP 101 adoption, particularly those with greater ex anteexposure to SSAP 101, consistent with reduced incentives to establish loss reserves for taxpurposes. Additionally, PC insurers with greater exposure to SSAP 101 show increasedearnings persistence and decreased returns on asset volatility, suggesting improved insurertransparency and an improved overall risk profile via tax avoidance mitigation. Overall, ourstudy offers important insight into the economic effects of accounting standards in theinsurance industry.