Research

PUBLICATIONS

"Enterprise Risk Management and Corporate Tax Planning"

Evan M. Eastman, Anne C. Ehinger, and Jianren Xu

This study examines the impact of enterprise risk management (ERM) programs on corporate tax planning. ERM is a holistic approach to managing an enterprise’s entire portfolio of risks (COSO 2004, 2017). We hand-collect data on ERM adoption for a sample of S&P 500 firms from 1993 to 2016. We empirically document that firms with ERM programs have lower cash effective tax rates (ETRs) than firms without ERM. Additionally, we find that the relation between ERM and tax avoidance is stronger among firms with more business segments. Finally, our results suggest ERM adoption offsets increases in opacity and tax uncertainty typically associated with tax avoidance strategies. Overall, we provide evidence that ERM allows firms to exploit tax avoidance opportunities through enhanced coordination and communication. 

"Capital Structure and Financing in the Health Insurance Industry: Evidence from the Affordable Care Act"

Evan M. Eastman, Joshua D. Frederick, and J. Bradley Karl

In this study we examine how the passage of the Affordable Care Act (ACA) impacts health insurer capital structure and financing decisions. Economic theory suggests that a firm’s capital structure depends on the institutional environment, including the regulatory environment. Using a panel of firm-level data on health insurers from 2004 to 2016, we first test whether insurer capital structure changed following the ACA. We then test whether specific provisions of the ACA influenced capital issuance. We find that the ratio of health insurer liabilities to capital significantly increased following the ACA. Furthermore, we observe that capital issuance determinants differ following the ACA and that this difference is influenced by medical loss ratio requirements, Medicaid expansion, and exchange participation. Our study contributes to the capital structure literature, as well as the literature examining the impacts of the ACA. Our study also has important implications for evaluating financial stability in the health insurance sector.

"Are Internal Capital Markets Ex-Post Efficient?"

James M. Carson, Evan M. Eastman, David L. Eckles, and Joshua D. Frederick

Internal capital markets enable conglomerates to allocate capital to segments throughout the enterprise. Prior literature provides evidence that internal capital markets efficiently allocate capital based predominantly on group member prior performance, consistent with the “winner picking” hypothesis. However, existing research has not examined the critical question of how these “winners” perform subsequent to receiving internal capital—that is, do winners keep winning? We extend the literature by providing empirical evidence on whether or not internal capital markets are ex post efficient. We find, in contrast to mean reversion, that winners continue their relatively high performance. Our study contributes to the literature examining the efficiency of internal capital markets and the conglomerate discount, as well as the literature specifically examining capital allocation in financial firms.

"Managed Care or Carefully Managed? Management of Underwriting Profitability by Health Insurers"

Patricia H. Born, Evan M. Eastman, and E. Tice Sirmans

Managed care provides health insurers a unique opportunity for discretion over certain aspects of financial reporting. Specifically, managed care mechanisms provide health insurers with a stronger ability to engage in loss control relative to other types of insurers. To test how health insurers exploit their ability to manage losses, we examine whether insures with more opportunities to manage care have significantly better underwriting performance in the fourth quarter relative to other health insurers. Using quarterly statutory filings from 2003-2016, we find evidence that a health insurer’s share of business in HMOs (relative to PPOs) is significantly and negatively related to their reported fourth quarter loss ratios. Additionally, while we find that fourth quarter loss ratios are higher for all health insurers following the implementation of the Patient Protection and Affordable Care Act (ACA), the ACA did not appear to influence health insurers with more ability to manage their fourth quarter results.  

"Market Reactions to Enterprise Risk Management Adoption, Incorporation by Ratings Agencies, and ORSA Act Passage"

Evan M. Eastman and Jianren Xu

Prior literature on ERM’s value implications focuses on cost-benefit analyses of implementing an ERM program. We take a novel approach by examining the implementation dynamics and study whether the timing of firms’ adoption affects ERM’s value implication. We find that firms experienced positive (negative) abnormal returns when adopting ERM following (prior to) 2005 when Standard & Poor’s (S&P) issued their ERM-related rating criteria. We also find evidence that ERM firms experienced positive abnormal market reactions to this rating criteria change by S&P but find no evidence for the following change by A.M. Best. Additionally, our study documents that the market rewarded ERM adopters and penalized non-adopters after November 2011 on key dates leading to the passage of the Own Risk Solvency Assessment (ORSA) Act when there was less uncertainty regarding ultimate passage of the Act. Overall, our results imply that the capital market’s view on ERM is shaped by rating agency and regulatory changes. Our findings are also consistent with the view that investors gain a greater understanding of ERM over time. 

"Accounting-Based Regulation: Evidence from Health Insurers and the Affordable Care Act"

Evan M. Eastman, David L. Eckles, and Andrew Van Buskirk

The Patient Protection and Affordable Care Act (ACA) requires that insurers spend a minimum amount of their premium revenue on policyholder benefits.  The Act specifies enforcement via a combination of insurer self-reporting, government examinations, and payment of policyholder rebates in cases where insurers fail to meet the required spending amount.  We find that insurers’ reported estimates are consistently overstated in situations where more accurate estimates would have triggered rebate payments; publicly-traded insurers (particularly those exhibiting poor financial reporting quality) exhibit the strongest evidence of strategic over-estimating.  In aggregate, we estimate that approximately 14 percent of insurers engage in strategic overestimates, and that insurer overestimates resulted in hundreds of millions of dollars in underpaid policyholder rebates.  Our study illustrates how a combination of regulatory design choices and lax oversight can weaken the effectiveness of accounting-based regulation and have substantial economic consequences.

"Reducing Medical Malpractice Loss Reserve Volatility through Tort Reform"

Patricia H. Born, Evan M. Eastman, and W. Kip Viscusi

This study examines how tort reform affects uncertainty in insurance markets by testing whether noneconomic damage caps influence reserving volatility for medical malpractice insurers. Using a panel of insurers from 1986 to 2009, we estimate the determinants of loss reserve error volatility and focus on how this volatility is influenced by the percent of premiums an insurer writes that are subject to noneconomic damage caps. We find empirical evidence that tort reform reduces reserve volatility over the subsequent three- and five-year periods, consistent with tort reform improving insurers’ loss forecasting ability. Our findings address outcomes of tort reform that are prominent concerns of legislators, regulators, and policyholders. This article contributes both to the literature examining the insurance market effects of tort reform as well as the literature examining loss reserving practices.

"It's About Time: An Examination of Loss Reserve Development Time Horizons"

Michael M. Barth, Evan M. Eastman, and David L. Eckles

There is a rich body of academic research into the question of earnings management via manipulation of loss reserve estimates in the property-casualty insurance industry. This study analyzes the variability of reserve estimates at different development horizons using individual company accident year reserve data to determine whether the predominant practice of relying on 5 years of development is appropriate. We examine two common measures of reserve estimation error, the loss reserve adjustment and the loss reserve development, and compare and contrast the two approaches. After examining reserve development patterns for each of the major lines of business reported in Schedule P, we conclude that the appropriate development horizon to accurately establish ultimate liability is longer than the current maximum reported horizon of ten years found in Schedule P for most lines of business. Although longer-term development horizons are necessary to establish insurers' ultimate liability, relatively short-term development horizons may be appropriate when attempting to identify deliberate manipulations or to assess solvency risk, where the short-term variations are the primary object of interest. Ultimately, this paper investigates the degree to which methodology originally developed for estimating loss reserve errors is appropriate today, in particular, relative to current data availability. 

"CEO Overconfidence and Earnings Management: Evidence from the Property-Liability Insurers' Reserve Errors" 

Thomas R. Berry-Stölzle, Evan M. Eastman, and Jianren Xu

This study investigates the relation between managerial overconfidence and loss-reserving practices in the U.S. property-liability insurance industry. We find robust evidence that CEO overconfidence is significantly associated with relatively low loss reserves, resulting in relatively high reported earnings. This finding is consistent with the theoretical predication that overconfident managers overestimate the returns on their investment projects and underestimate losses. Our result contributes to the literature linking CEOs’ personality traits and firms’ accounting policy as well as to the literature on insurer loss-reserving practices.

"Ratings: It's Accrual World"

James M. Carson, Evan M. Eastman, and David L. Eckles

Loss reserves are a discretionary tool for managing insurer earnings, with more accurate and/or less volatile reserve errors resulting in higher accruals quality. We investigate whether accruals quality is related to financial strength ratings. Specifically, we use insurer loss reserve errors as a measure of the quality of accruals and examine whether overall accruals quality, as well as a decomposition into innate and discretionary accruals quality, is related to insurer financial strength ratings. We find that firms with lower-quality (noisier) accruals receive lower financial strength ratings from A.M. Best. This result holds for both innate and discretionary accruals. Overall, we provide the first evidence that the quality of accounting information is a significant factor in ratings of insurance firms.

PAPERS UNDER REVIEW

"Earnings Management, Executive Compensation, and Ownership Structure"

Evan M. Eastman, David L. Eckles, Martin Halek, and Lawrence S. Powell

This paper investigates the relation between executive compensation, earnings management, and organizational form. We find that managers of publicly traded stock firms who receive a larger portion of their compensation in the form of incentive-based bonus payments are more likely to manipulate loss reserves, whereas managers of customer-owned (mutual) firms and privately held stock .firms are not. Specifically, we find that managers of publicly traded .firms tend to make earnings-increasing decisions as they receive a higher level of compensation in the form of a bonus, consistent with the theories proposed by Healy (1985). We find no evidence of a similar effect when analyzing managers of mutual firms or private stock firms, which is consistent with what agency theory predicts. Additionally, we find that specific decision makers (i.e., CEOs) show evidence of having made bonus-increasing earnings management decisions.

"Asymmetry in Earnings Management Surrounding Targeted Ratings"

Evan M. Eastman, David L. Eckles, and Martin Halek

This study investigates asymmetric incentives in firms managing earnings in an attempt to achieve a target financial strength rating. We find empirical evidence that firms with an actual rating below their target rating use income-increasing earnings management. However, we find no evidence that firms above their target rating manage earnings. Our findings are robust to a variety of alternative definitions of target rating. Notably, we examine a subset of firms with an exogenously determined target rating and find consistent results. These findings indicate that firms have incentives to reach a target rating if they are rated below their target, but not above their target. 

"Direct and Indirect Valuation Effects of Health Insurance Mergers"

Evan M. Eastman, Joshua D. Frederick, and Charles C. Yang

The health insurance industry has experienced substantial consolidation following the passage of the Affordable Care Act (ACA). This paper examines the valuation effects of mergers in the U.S. health insurance industry pre- and post-ACA. We use event studies and cross-sectional regression models for our abnormal return analyses of health insurers and substantiate our results through calculating potential sample selection bias and the impact threshold of confounding variables. Our analyses document positive target returns and non-negative bidder and combined returns, which provide support for the inefficient management hypothesis. Our cross-sectional regression results show that abnormal returns from merger announcements are lower for health bidders compared to health targets. We also find that health insurer bidders receive higher positive abnormal returns after the ACA enactment. Additionally, our results indicate mergers occur for synergistic reasons in the pre-ACA period; however, post-ACA mergers have collusive effects.

"Risk Management and Corporate Lifecycles: Evidence from Reinsurance Purchases" 

Cassandra R. Cole and Evan M. Eastman

Theory suggests that firms move through distinct lifecycle stages that are determined by internal and external factors. Empirical evidence indicates that firm behavior differs across these lifecycle stages. Using a cashflow-based proxy for lifecycle stages, we examine how demand for corporate risk management, measured by property-casualty insurer reinsurance use, varies across the corporate lifecycle. Our results suggest that demand for reinsurance varies across lifecycle stages, with firms using more reinsurance in the introduction, growth, shake-out, and decline stages. We also find evidence that there are observable differences in the relation between reinsurance use and lifecycle stages when considering external and internal reinsurance separately. Finally, when we jointly consider the impact of lifecycles and factors capturing the main theoretical motives for reinsurance use (i.e., capacity, catastrophic exposure, and earnings smoothing), we continue to observe differences in the relationship between lifecycles and the demand for internal and external reinsurance.

"Accounting Standards and Gains Trading"

Evan M. Eastman, Kyeonghee Kim, and Marc A. Ragin

We examine gains trading behavior under a unique accounting rule in the U.S. life insurance industry. When a bond is sold, the proceeds must be amortized over its remaining maturity. This rule limits earnings management using realized capital gains and losses (RGL); overcoming this limitation requires managers to engage in extraordinary sales activity. Using quantile regressions, we find evidence that firms in the highest quartile of RGL realize gains to offset operating losses. Such behavior becomes more extreme in the highest quantiles of the RGL distribution. We find that this behavior is driven by private life insurers who report to stakeholders under statutory accounting principles, where this accounting rule applies. Our study contributes to the literature on earnings management among financial institutions, highlighting the nuances of gains trading when reporting rules dilute the effectiveness of such behaviors.

"Regulatory Capital and Deferred Tax Assets"

Evan M. Eastman, Anne C. Ehinger, and Cathryn M. Meegan

Insurance regulators substantially relaxed rules on deferred tax asset (DTA) inclusion in regulatory capital calculations during and following the financial crisis. We find evidence firms use additional discretion in regulation to increase the level of DTAs admitted into regulatory capital. As DTAs are less liquid relative to other assets, our study raises the concern that insurance firms may appear more financially stable than the reality of their underlying economic condition. Consistent with this concern, we find firms with relatively low levels of regulatory capital engage in greater risk-taking than their peers, potentially as a means of qualifying additional DTAs for inclusion in regulatory capital. Higher levels of DTAs are also associated with a higher likelihood of insolvency, and investors appear to recognize the increased risk associated with increased inclusion of DTAs in regulatory capital. Our study has important implications for regulators considering changes to capital standards for other financial institutions.

"Regulatory Capital and Catastrophe Risk"

Evan M. Eastman and Kyeonghee Kim

In this study, we examine the effect of a capital regulation reform on U.S. insurers’ pricing of homeowners insurance. The reform imposes greater regulatory capital costs for insurers exposed to catastrophe risks. We first document that the regulatory capital reform had a meaningful impact on insurers. Using a difference-in-differences design and homeowners insurance prices in the U.S., we find empirical evidence that the reform results in modest price increases per household. Our back-of-the-envelope calculation suggests the increase in insurance price is commensurate to 22-48% of the increase in regulatory capital costs due to catastrophes. We also find that the increase is driven by insurers with greater regulatory capital constraints. Overall, our study provides evidence that climate-related regulatory capital costs can be passed on to consumers at a modest level.

WORKING PAPERS

"Enterprise Risk Management and Financial Misconduct"

Evan M. Eastman, Chan Li, Lili Sun, and Jianren Xu

This study examines the impact of enterprise risk management (ERM) on corporate financial misconduct. ERM represents a structured, holistic approach to managing the entire portfolio of risks faced by an enterprise. We expect that ERM curtails financial misconduct because ERM reduces managerial incentives for misconduct through decreasing external financing pressure and alleviating managerial short-termism. Using hand-collected data on ERM adoptions among S&P 500 firms, we find that firms with an ERM program experience less financial misconduct as measured by Accounting and Auditing Enforcement Releases (AAERs) and class-action lawsuits than firms without an ERM program. The curtailing effect of ERM on financial misconduct is more pronounced when managerial incentives for misconduct are stronger (i.e., among firms subject to financial constraints or with greater managerial short-termism), as well as when an ERM program becomes more mature. We also instrument for firms’ ERM adoption with an exogenous event—exposure to natural catastrophes and our results hold.

"The Capital Market Consequences Associated with Classifying Unrealized Gains and Losses on Available-For-Sale (AFS) Equity Securities in GAAP Net Income"

John L. Campbell, James M. Carson, Evan M. Eastman, and Dan Yang

The Financial Accounting Standard Board (FASB) recently issued Accounting Standards Update No. 2016-01 which requires firms to report unrealized gains and losses on available-for-sale (AFS) equity securities in net income, thus reducing firms’ ability to manage or smooth earnings. Previously, these gains and losses were recorded in other comprehensive income and were not recognized in net income until the investments were sold. This paper examines the capital market consequences associated with this reporting change. Using data from U.S. public insurers, we find a significant decrease in firms’ earnings response coefficient (ERC) after the application of this new standard, and that the mechanism explaining this reduction in ERC is a decrease in earnings persistence. This result suggests that, after the reporting change, earnings less fully reflect the information investors use when revising their beliefs about firm value around earnings announcements. However, our evidence also indicates no significant changes in investor assessment of overall firm risk following the reporting change. This result suggests that investors appear to understand that the reduction in earnings persistence is not reflective of a change in firm risk. Overall, our results suggest that the classification of unrealized gains/losses on AFS equity securities into net income reduces the persistence of earnings and reduces the extent to which earnings reflect the information investors use to revise their beliefs about firm value around earnings announcements, and that investors appear to recognize that these reductions in persistence are not a reflection of firm performance becoming more volatile.

"The Usefulness of Increased Disclosure for Complex Estimates"

Evan M. Eastman, Anne C. Ehinger, and Andrea Tillet

Financial statement users struggle to understand complex estimates. We examine whether increased disclosure around complex estimates aids financial statement users’ understanding of the underlying estimate. We use the adoption of ASU 2015-09, which required increased disclosure surrounding a material complex estimate for insurance companies, the loss reserve, to test our research question. We find that while firms' loss reserve disclosures became more comparable after ASU 2015-09, they also became more complex. The net effect of these disclosure changes negatively influences investors' ability to properly price insurers' loss reserves, indicating that the disclosures increased investor uncertainty surrounding this complex estimate. Our findings contribute to the disclosure and complex estimates literature and should be of interest to the FASB and SEC as they consider requiring increased disclosure in other complex areas of financial reporting.

"Homeowners Insurance and Housing Prices"

Evan M. Eastman, Kyeonghee Kim, and Tingyu Zhou

We use a novel dataset that contains private homeowners insurance market activities including average insurance prices, insurance cancellations, and cancellations attributable to hurricanes, at the insurer-county-quarter level in Florida. We merge the dataset with individual property-level transaction data in Florida. Using insurance supply-side factors as an instrument for insurance prices, we report that a 10% increase in average homeowners insurance prices leads to a decrease in housing prices of at least 1.2% to 2.1%, with pronounced effects on risky areas and in areas with a high prevalence of insurance policy cancellations due to hurricanes. Our results are robust to using both house price indices and individual housing transactions, to including comprehensive location-specific or property-specific fixed effects, and to including a rich set of time-varying locational and housing attributes. In addition, our results are not driven by disaster-related factors and are more pronounced in areas with a higher prevalence of mortgages and GSE loans. Our findings shed light on the critical role of homeowners insurance in the housing market and suggest that its availability and pricing stability are significant factors influencing property values. To our knowledge, this is the first study to explore the effects of private homeowner insurance on house prices.

"Accounting Discretion and Loss Reserve Discounting: Evidence from the Canadian Property-Casualty Insurance Industry"

Evan M. Eastman, David L. Eckles, and Mary Kelly

We examine costs and benefits associated with accounting standards that allow property-casualty insurers to discount their loss reserves. While discounting reserves presents a more complete assessment of a firm’s economic condition, it may also be used to manage earnings. Using a sample of Canadian insurers from 2011 to 2019, we find empirical evidence that firms manage discount rates in response to financial weakness, rate regulation, and potential merger activity, suggesting that firms use discretion over discount rates to meet reporting objectives. However, we find no evidence of substitution between earnings management tools. We also find evidence that discount rates convey useful information to external parties—they are relevant predictors of future investment returns and are incorporated into analyst ratings. Finally, we document real effects of requiring firms to report discount rates. Firms reporting higher rates allocate more of their investment portfolio to equities to justify the higher rates.

"Capital Structure, Financial Strength Ratings, and Market Discipline"

James M. Carson, Evan M. Eastman, and Dan Yang

This paper investigates how insurer financial strength ratings impact capital structure. Specifically, we examine how firms alter their capital structure following a rating downgrade. Consistent with prior literature, we find that insurers decrease leverage following a downgrade. We next examine various ways in which firms achieve this adjustment. We find empirical evidence that insurers raise external capital, receive internal capital markets transactions, and understate estimated losses following a rating downgrade. This paper contributes to the literature examining insurer capital structure, as well as the literature examining the impact of financial strength ratings on insurer outcomes. This study also contributes to the literature examining internal capital markets and accounting discretion, by documenting that both are impacted by ratings considerations. 

"Insurer Solvency Regulation in the Shadows: Evidence and Effects of Informal Regulatory Intervention"

Michael M. Barth, Evan M. Eastman, and Robert W. Klein

In this proposal, we discuss how we intend to extend previous research on the incidence and effects of regulatory interventions with troubled or insolvent property-casualty insurance companies. This research has focused solely on formal, public regulatory interventions (FPRIs). Generally, prior studies have found that greater regulatory forbearance (i.e., more time between the first intervention and the liquidation of a company) tends to increase the cost of insurance insolvencies as measured by guaranty association (GA) assessments. What has not been examined is the incidence and effects of informal, nonpublic regulatory interventions (INPRIs). Our initial analysis suggests that such interventions are common; in some cases, they precede formal actions and in other cases no formal action occurs. Among the questions we wish to explore is whether INPRI is more often associated with better outcomes (e.g., companies not being liquidated, lower GA costs) than worse outcomes. In other words, does such intervention mean that regulators are acting more proactively, or does it mean that they are either putting off the inevitable or letting companies dig themselves deeper into a whole. The answers to these questions may be that "it depends" on the specific circumstances of a given company as well as the nature of the INPRIs. Regardless, we contend that the measurement of regulatory forbearance ideally should consider both categories of interventions as well as their timing. We develop a measure of INPRIs based on insurer financial statements. Using this measure, we find evidence that INPRIs are associated with a higher probability of eventual FPRI. However, we also find preliminary evidence that when a firm’s RBC ratio is not below its Company Action Level (CAL) risk-based capital (RBC) requirement, INPRIs can reduce the probability of entering FPRI. Our initial results suggest that U.S. insurance regulators exercise broader authority and discretion with respect to troubled insurers than what has been recognized in the extant academic literature.

"Innovation and the Cost of Capital: An Examination of the 2010 Affordable Care Act"

Evan M. Eastman and Anne C. Ehinger

We examine the effect of government regulation on a firm’s cost of capital and the spillover effects on innovation.  We use the health insurance industry as our setting as regulators passed the Affordable Care Act (ACA) in 2010, providing an exogenous shock to the industry. We find evidence consistent with firms in the healthcare industry experiencing an increase in the equity cost of capital following the passage of ACA.  We also find a decrease in future patent applications, suggesting a decrease in innovation for these firms following the passage of ACA.  Finally, we find that firms with greater cost of capital increases following the passage of ACA engage in incrementally less innovation, suggesting that at least part of the decrease in innovation relates to the premium demanded by investors following government intervention.

"Personal Characteristics and Accounting Estimates: Evidence from CEOs, Actuaries, and Reported Loss Reserves"

Evan M. Eastman, Olga Kanj, and Mary Kelly

We examine whether the personal background of decision-makers affects accounting estimates. Testing for the effect of cultural values and gender of actuaries and CEOs on reported loss reserve, we find that the cultural values of actuaries affect the accuracy of loss reserve estimates. These results are robust to using year fixed effects, change of family name, and cultural origin. The CEO’s cultural background did not impact loss reserve estimates, but female CEOs were associated with larger reserving errors. We also use the financial crisis as a quasi-experimental shock to test for the presence of selection bias. Overall, we show that the actuary’s cultural background, but not gender affects the accuracy of loss reserve estimates. Specifically, the accuracy of loss reserve is significantly less when an actuary’s background is rooted to a culture with low uncertainty avoiding values and greater when the actuary’s background is rooted to a culture with high uncertainty avoiding values.

"Risk Capital, Yield, and Strategic Liquidation: Evidence from Structured Fixed Income Portfolio Management"

Stephen L. Buschbom and Evan M. Eastman

This study examines the investment decisions of regulated financial institutions. Specifically, we examine commercial mortgage-backed securities transactions made by insurers between 2006 and 2013. We find that firms with riskier bond portfolios are less likely to sell downgraded CMBS bonds. Additionally, we find evidence that firms are more likely to purchase bonds in the primary market when a bond's yield is higher than a firm's portfolio return, which is consistent with reaching for yield behavior. We additionally document that firms attempt to hold on to yield--firms have a lower propensity of selling downgraded bonds in the secondary market following a primary market purchase after controlling for latent factors related to the primary market purchase decision.

"Managerial Style and Accounting Discretion: Evidence from the Property-Casualty Insurance Industry"

Evan M. Eastman

This study investigates the role managerial style plays in establishing insurer loss reserves. While the majority of prior studies have examined firm-level incentives for management of the insurer loss reserve, relatively  fewer studies have examined the role played by managers. By tracking chief executive officers (CEOs) across firms over time, I can examine the role CEOs have in determining loss reserve error magnitude and accuracy for different firms. I find evidence that CEO fixed effects have significant explanatory power when estimating the determinants of loss reserve errors. This suggests that individual managers play a significant role in establishing loss reserves. This study contributes to the literature examining the impact of individual managers on firm accounting policies, as well as the literature examining the determinants of insurer loss reserve errors.