Accounting Earnings and Stock Prices of Insurance Companies.

Abstract The article examines several aspects of the relationship between accounting earnings and stock prices. The author discusses the market reaction to accounting changes and whether any non-reported earnings measures have a higher association with stock prices than the reported measure. insurance stocks. The topic of insurance stocks is of added interest to the accounting profession as considerable resources have been devoted to analyzing two issues in the insurance industry, that is, the measurement of underwriting earnings and the measurement of capital gains and losses on marketable equity securities. The article also provides some evidence on the marketable securities issue. One argument against the inclusion of annual capital gains and losses in the income statement, rather than a separate surplus statement, was that the income statement alternative "may be a damaging factor to the orderly functioning of the stock market" and may cause "the stock of the company to decline when it should not." The evidence in this article suggests there is a small likelihood of such consequences.