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Title: Earnings management bij Nederlandse Schadeverzekeraars.
Authors: Borst, M
Keywords: earnings management
non-life insurers
loss reserve error
claim loss reserve
Dutch insurance
Issue Date: 1-Dec-2015
Publisher: Open Universiteit Nederland
Abstract: The Dutch insurance sector is under pressure and has to deal with many challenges. The premium volume is declining, the number of insurers is declining, monitoring is increasing and the number of employees working within the industry decreases. Furthermore, insurers have the ability to manage their result through the claim loss reserve. This is a big liability on an insurer’s balance sheet to pay out future claims. The combination of these factors means that the probability will increase that Dutch insurers will manipulate their results. The manipulation of economic performance is also called earnings management. And it takes place both inside and outside the limits of the law. Other studies have shown that insurers with poor results apply more earnings management, than insurers with good results. The current developments in the insurance industry and the insights from the literature have led to investigate earnings management among Dutch non-life insurers. The aim of this study is to unravel earnings management among Dutch non-life insurers and to examine whether there are factors which can predict earnings management. The following research question was leading during this research, "How do Dutch non-life insurers apply earnings management in practice?" In addition to an extensive literature research a quantitative analysis of Dutch non-life insurers has been done. This has been done by analyzing the frequency distribution of the profits of insurers. This has also been done by means of a linear regression. The relation between the claim loss reserve and a few financial statement items and macro-economic factors have been examined, with the aim to validate predictors of earnings management. This study shows that Dutch non-life insurers use earnings management. This is reflected in the small number of insurers who report a small loss. There are no direct connections discovered with predictive value for earnings management. It therefore remains difficult to identify in advance whether earnings management will be applied by insurance companies. However, an increasing pressure on the profit of non-life insurers could led to an increase of earnings management. The first recommendation is to examine the same hypotheses using the data of the Dutch Bank (DNB). Such a study can make it possible to validate the predictive factors from the literature for the Dutch market. The second recommendation is to do a similar study of Dutch life insurers. These insurers are even under more pressure than non-life insurers. The third recommendation is to do a qualitative study of other reserves that may be used for earnings management. Examples include the “reserve for unearned premiums” and the non-technical side of the income statement.
Appears in Collections:MSc Management Science

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