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NTU Management Review Vol. 34 No. 1 Apr. 2024

Table 1 NAIC P-C Statement Schedule P- Part 2: Calculation of Loss Reserve Error
NAIC P-C Statement Schedule P- Part 2 – Summary
Incurred Losses and Allocated Expenses Reported at Year End ($000 Omitted)
1 2 3 4 5 6 7 8 9 10 11
Accident
year
1. Prior 3,285,875 3,410,600 3,524,213 3,637,263 3,587,121 3,623,562 3,685,809 3,714,597 3,739,139 3,746,374
2. 2002 5,972,319 5,928,093 5,976,433 5,980,533 5,956,761 5,944,897 5,938,278 5,932,815 5,924,491 5,933,300
3. 2003 6,341,971 6,172,137 6,162,098 6,115,388 6,101,180 6,097,493 6,090,287 6,090,476 6,085,835
4. 2004 6,473,471 6,413,553 6,339,425 6,341,557 6,309,336 6,284,525 6,269,843 6,263,201
5. 2005 6,943,086 6,791,488 6,794,457 6,798,872 6,770,778 6,758,415 6,745,659
6. 2006 7,073,917 7,017,149 7,020,017 6,984,007 6,944,226 6,919,259
7. 2007 7,465,502 7,507,457 7,404,207 7,339,228 7,297,571
8. 2008 8,456,304 8,518,540 8,419,513 8,342,704
9. 2009 8,005,030 7,766,655 7,682,848
10. 2010 7,701,817 7,588,385
11. 2011 8,539,439
Note: This table is excerpted from the 2011 Annual Statement of Nationwide Mutual Insurance Company (NAIC Code 23787)
Schedule P: Part 2-Summary for 2011. The table reports losses estimated in the year incurred as well as subsequent ad-
justments in the estimate as claims are settled over time. Incurred losses are losses that are expected to be paid as a result
of providing insurance coverage, including the losses that are known to the insurer plus those that are incurred but not re-
ported (IBNR). In particular, it shows incurred losses by the year in which the losses were incurred (rows 1 to 11), known as
the accident year, and incurred losses by the years in which they are estimated (columns 2 to 11), known as the calendar
year. For example, in calendar year 2006, Nationwide estimated that $7,073.917 million in losses were incurred during the
accident year 2006. This estimate of 2006 accident year loss was revised downward to $6,919.259 million by calendar year
2011. An accident year reserve error is calculated as the difference between losses incurred in a given accident year and
a revised estimate of losses incurred five years in the future. To get the revised estimate five years in the future for 2006,
annual statement data from 2011 are used. Initial over- (under-) reserving yields a positive (negative) reserve error since
the revised estimate of total losses incurred five years in the future is less (greater) than the initial estimate. For Nationwide
in 2006, the accident year reserve error is $154.658 million (=$7,073.917 million-$6,919.259 million, indicated in bold and
italic type). The reserve error that we estimate in this study is the error in the reserve at a given calendar year end. It is
calculated as the sum of the accident year reserve errors for a given calendar year. Prior studies define this reserve error
as the difference between total losses incurred in a given calendar year and a revised estimate of total losses incurred five
calendar years in the future (Beaver et al., 2003; Gaver and Peaterson, 2004). The estimate of total incurred losses for
a given calendar year is the sum of the losses in the column of that year. For Nationwide, at the end of 2006, estimated
losses for all years up to and including 2006 totaled $35,864.100 million (the sum of the italicized values in column 6-2006).
By the end of 2011, the estimated losses for the same loss period were reduced to $35,693.628 million (the sum of the itali-
cized values in column 11-2011). Therefore, Nationwide’s reserve error for 2006 is $170.472 million (=$35,864.100 million -
$35,693.628 million), indicating that Nationwide over-reserved by $170.472 million in 2006.

positive coefficient for the interaction of the SOX indicator variable, the publicly-traded

stock indicator and the external actuary indicator for weak insurers. However, the sign of
coefficient for the interaction of the in-house actuary indicator, the publicly-traded stock
indicator and the SOX indicator variable for weak insurers remains an empirical issue.
On the other hand, we hypothesize that healthy publicly-traded insurers to have

bolstered reserves after SOX whether an in-house actuary is used or not. Thus, significantly
positive coefficients are expected for In-House Actuary×Post SOX×Publicly-traded

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