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 t axes. To test this prediction, we exploit the industry's unique state tax d isclosures. We examine firm-level data, collected from the publicly availab le, statutory reports filed with each state government. Reported premiums a t the insurer-state level, scaled by incurred losses, are regressed on stat e 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.