An example from the property-casualty insurance industry will illuminate the possibilities. When a p-c company is acquired, the buyer sometimes simultaneously increases its loss reserves, often substantially. This boost may merely reflect the previous inadequacy of reserves—though it is uncanny how often an actuarial “revelation” of this kind coincides with the inking of a deal. In any case, the move sets up the possibility of “earnings” flowing into income at some later date, as reserves are released.
