Second, examining alternative methods of surplus management can provide insights into the relative costs of changing various firm policies.
But there are reasons that regulatory oversight might not be effective in limiting surplus management. Regulatory oversight of surplus management normally focuses on solvency--commissioners thus typically focus on limiting overstatement.
Distinguishing Between Growth and Surplus Management
To identify evidence of surplus management, one must account for the mechanical association between surplus to assets and growth.
To affect compensation offered to policyholders, surplus management must occur prior to establishing the appropriate level of policyholder compensation in the conversion.
But without examining financial or operating performance, this evidence cannot separate the two cases mentioned above--where the industry is undergoing rapid growth versus where the firm is experiencing financial or operating difficulties (this evidence is reported below in "Methods of Surplus Management").
This evidence is consistent with two basic interpretations: surplus management and growth.
Since incentives to manage surplus should be stronger within this set of firms, this investment-return evidence appears consistent with surplus management.
This evidence is consistent with surplus management: in years 0 and -1, performance is lower for converting companies than for matching mutuals.
