Property-Liability Insurers’ Discretionary and Nondiscretionary Loss Reserve Error: Relation with Investor Sentiment

We examine whether investor sentiment is associated with loss reserve estimates of property-liability (P/L) insurers. Using the Michigan Consumer Confidence Index as a proxy for sentiment, we find that the level of investor sentiment is negatively associated with discretionary component of loss reserve error. In contrast, our evidence does not suggest a similar relationship hold for investor sentiment and nondiscretionary loss reserve error....