SSAP 65

Question 1

How are premium/ liabilities recorded under Tail Coverage contracts with an indefinite period:

Answer 1

• the premium should be fully earned at inception

* the liabilities for unreported claims should be recognized at inception

Question 2

How are premium/ liabilities recorded under Tail Coverage contracts with a fixed period:

Answer 2

• the premium should be earned over the term

* losses should be recorded when reported.

Question 3

Accounting action required of insurer if it provides tail coverage at no additional charge:

Answer 3

Establish a policy reserve to ensure that premiums are not earned prematurely

Question 4

Items that the insurer needs to disclose if there is a change in the key discount assumptions:

Answer 4

• amount of the discounted reserves at the current rates and assumptions (excluding the current AY)
• amount of the discounted reserves at the prior rates and assumptions (excluding the current AY)
• change in discounted liability due to change in interest rates and/ or assumptions
• amount of the non tabular discount, by line of business and reserve category

Question 5

Accounting treatment of structured settlements in which the insurer is the owner and payee:

Answer 5

• no reduction to loss reserves
• the annuity is recorded as an “other than invested asset” at its present value
• the income from the annuity is recorded as miscellaneous income

Question 6

Accounting treatment of structured settlements in which the claimant is the payee:

Answer 6

• loss reserves can be reduced

* the cost of the annuity is recorded as a paid loss

Question 7

Difference between SAP and GAAP treatment of structured settlements when the claimant is the owner and payee, but has not released the insurer:

Answer 7

• GAAP: the gain from the purchase of the annuity needs to be deferred
• SAP: recognizes gain immediately

Question 8

Disclosures necessary when entering into a structured settlement:

Answer 8

• the amount of reserves which the company no longer needs to carry because it has purchased annuities with the claimant as payee.
• the extent to which it is contingently liable for the liabilities.
• if the aggregate value of annuities (for which the insurer has not received a release of liability) from a given life insurer exceed 1% of the surplus, it must disclose the name, location of the insurer and aggregate value of annuities.

Question 9

2 requirements to qualify a contract as a “Long Term contract”:

Answer 9

• policy term greater or equal to 13 months

* reporting entity can not cancel contract nor increase premium

Question 10

UEPR for a Long Term contract is the maximum of what 3 tests:

Answer 10

1. Management’s best estimate of the amounts refundable to the contract holders
2. Gross premium * (projected future gross losses & expenses from the unexpired term/ projected total gross losses & expenses).
3. Projected future gross losses & expenses to be incurred during the unexpired term, minus the present value of future guaranteed gross premiums.

Question 11

Are loss reserves for high deductible policies net or gross of the deductible?

Answer 11

Net (unless the deductible is deemed to be uncollectible)

Question 12

Rules to determine nonadmitted balances of recoverables from high deductible policies:

Answer 12

• If the insurer does not hold collateral, deductible recoveries that are over 90 days overdue are nonadmitted.
• If the insurer holds collateral, 10% of the deductible recoverable in excess of collateral is nonadmitted. If amounts in excess of this 10% are deemed uncollectible, they should be nonadmitted as well.

Question 13

When do dividends to policyholders become liabilities:

Answer 13

When they are declared