A Multivariate Analysis of Loss Reserving Estimates in Property-Liability Insurers

This article tests the hypotheses that exogenous economic developments and smoothing activity significantly affect loss reserving errors in the automobile liability insurance line. A sample of sixteen large automobile liability insurers is analyzed using pooled, cross-section time series regression for the period 1955-1975. The results indicate that loss reserving errors do stabilize reported underwriting results and that exogenous economic factors such as interest rates and unanticipated inflation are significantly related to loss reserving errors for the sample insurers. These findings can be used by regulators and stockholders to evaluate insurer performance more meaningfully.