Gender Differences in Reserving Conservatism

Abstract

Given the rapidly growing industry-wide trends to promote diversity, we provide the first evidence that executive gender differences impact insurer corporate decisions by examining reserve management. In a sample of property-liability insurers with 34 unique female chief executive officers (CEOs) from 2007 to 2013, we find that female CEOs are associated with more conservative loss reserves. Economically, female CEOs over-reserve by 2.25% of total assets, relative to male CEOs. Our identification strategy relies on an instrumental variable approach and a difference-in-differences design based on a propensity-score matched sample. In an analysis of a subset of 13 unique female CEOs involved in turnovers, we find that reserving conservatism increases (decreases) following male-to-female (female-to-male) CEO turnovers compared with male-to-male turnovers. Our study provides economic implications for the industry-wide initiatives and is relevant to various stakeholders.