Guy Carpenter & Company, Inc., Marsh & McLennan’s reinsurance specialist, and Criterion Research Group LLC, an independent investment research firm, announced that they have entered into a licensing agreement that allows data from Criterion’s proprietary Accrual Model, including Criterion’s accrual decile rankings, to be incorporated into Guy Carpenter’s LEAD models.
“The LEAD models attempt to forecast the frequency of securities class action suits, which account for the majority of D&O insurers’ loss activity,” the bulletin explained.
“Criterion’s Accrual Model, which was developed in conjunction with three accounting professors affiliated with the Wharton School of the University of Pennsylvania, quantifies the accrual component of the reported earnings of 5,000 U.S. publicly traded companies,” the announcement continued. “Accruals – management estimates of future revenues and expenses that impact currently reported earnings – can be subjective and may be influenced by a variety of factors. Criterion’s research suggests that companies with higher accrual components to their reported earnings may be more likely to experience class actions, earnings restatements and SEC enforcement proceedings.”
The announcement also noted that “Wharton professor Scott Richardson, whose academic research is frequently the basis for sophisticated institutional accrual models, is on retainer with Criterion and works exclusively with it to improve the model’s predictability. Under the licensing agreement, Guy Carpenter is entitled to these improvements.
LEAD was developed in conjunction with NERA Economic Consulting, also a subsidiary of Marsh & McLennan Companies, and incorporates a wide range of statistically significant variables in its analysis of the likelihood of a securities class action suit. The LEAD models address all U.S. publicly traded companies including those with ADR’s (American Depository Receipts).”
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