AN ANALYSIS OF PROPERTY-CASUALTY INSURERS: Results

ETR

The regression results in Table 3 present evidence that is consistent with property-casualty insurers managing their accounting reports to mitigate tax costs.13 In the tests conducted using multistate insurers (columns A-E), the regression coefficient estimates on ETR, PREMRATE and INCRATE are always negative, as predicted, and significant with t-statistics ranging from -1.90 to -4.41.

INSERT TABLE 3

Column A reports the summary statistics for ETR, INCDUM, and eight previously documented price determinants. Coefficient estimates are not reported for the eight lines of business. The regression coefficient on ETR is -5.33 with a t-statistic of -4.41, consistent with reported prices falling in state insurer taxes. The coefficient implies that a one standard deviation increase in the effective state tax rate (0.005) decreases the reported premium-to-loss ratio by 0.027 (-5.33 * 0.005). Evaluated at the mean PRICE of 1.61, the finding indicates that insurers respond to a standard deviation increase in ETR by understating the insurance prices they report to state regulators and tax officials by 1.7 percent (0.027 / 1.61). 1 hour payday loans

predsign |____________ MultistateC ____________| Single-StateF
|————A B D ————|E
TAX VARIABLES
ETR (-) -5.33(-4.41) -4.46(-3.65) -4.07(-3.07) -5.04(-3.75) 2.47(0.24)
INCDUM (?) -0.087(-4.84) -0.087(-4.85) -0.063(-3.73) -0.085(-4.64) 0.047(0.42)
EASYETR (-) -5.35(-3.74)
PREMRATE (-) -1.83(-1.90)
INCRATE (-) -0.94(-3.57)
CONTROLS
Intercept 1.93(22.3) 1.97(22.7) 1.87(21.5) 2.17(168.8) 2.40(4.48)
RATEREG (-) -0.035(-3.07) -0.035(-3.09) -0.026(-2.25) -0.021(-1.91) -0.034(-2.87) -0.194(-2.18)
RESTRICT (-) -0.001(-3.48) -0.001(-3.50) -0.002(-3.75) -0.002(-5.04) -0.001(-3.45) 0.003(0.90)
NOFAULT (-) -0.030(-2.36) -0.030(-2.35) -0.025(-1.92) -0.028(-2.24) -0.029(-2.27) 0.002(0.01)
INSPOP (-) -0.068(-2.98) -0.067(-2.96) -0.072(-3.23) -0.088(-4.06) -0.062(-2.65) 0.011(0.05)
DIRWRITE (-) -0.033(-2.38) -0.025(-1.84) -0.033(-2.39) -0.028(-1.47) 0.142(1.39)
SIZE (-) -0.012(-2.94) -0.014(-3.42) -0.011(-2.71) -0.020(-3.77) -0.041(-1.40)
CAPITAL (+) 0.083(1.99) 0.089(2.12) 0.084(2.01) -0.038(-0.21)
PORTRISK (-) 0.129(3.12) 0.140(3.39) 0.123(2.98) -0.199(-0.82)
adj. R2 0.02 0.02 0.02 0.20 0.01 0.03
n 12,573 12,573 12,573 12,573 12,573 180