Managing Annual Accounting Reports to Avoid State Taxes : An Analysis of Property-Casualty Insurers

We hypothesize that, in their annual accounting reports, property-casualty insurers allocate premiums from multistate policies to reduce total state taxes. To test this production, we exploit the industry?s unique state tax disclosures. We examine firm-level data, collected from the publicly-available, statutory reports filed with each state government. Reported premiums at the insurer-state level, scaled by incurred losses, are regressed on state tax measures. Consistent with tax-motivated income shifting, we find the premium-loss ratio is decreasing in state tax rates. The negative relation is greatest for insurers specializing in multistate lines of business