Abstract: This study examines how property-casualty (P&C) insurers exercise managerial discretion in adjusting loss reserves in response to financial constraints and regulatory pressures. Using exogenous weather shocks to establish causality, we find that insurers near the Risk-Based Capital (RBC) threshold and those with smaller operational scale are more likely to shift reserve errors toward under-reserving direction potentially to avoid regulatory scrutiny or to present a stronger financial position. In contrast, insurers already known to be financially weaker, such as those with low credit ratings, tend to adopt more conservative strategies, either by increasing over-reserving or by reducing the extent of under-reserving. These differing reserve responses highlight how insurers strategically adjust their financial reporting behavior under pressure, balancing the need for capital management with the risks of regulatory oversight.
Abstract: We document the impact of the COVID-19 pandemic on property-casualty industry loss experience, focusing particularly on the effects associated with differences in social distancing practices across states. We find that stronger policy interventions and more pronounced reductions in social mobility were associated with lower losses, particularly in the Auto and Workers Compensation lines of business.