SSAP 65: P&C Contracts

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
• 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

What needs to be disclosed if insurer uses tabular discounts applied to loss reserves?

*Note: tabular discounts do not apply to LAE reserves

Answer 5

• Tables used (for tabular discount)
• rates used
• the discounted liability from the financial statement
• the amount of tabular discount, by line of business and reserve category (i.e. case,
  and IBNR)

Question 6

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

Answer 6

• 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 7

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

Answer 7

• loss reserves can be reduced

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

Question 8

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

Answer 8

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

Question 9

Disclosures necessary when entering into a structured settlement:

Answer 9

• 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 10

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

Answer 10

• policy term greater or equal to 13 months

- reporting entity can not cancel contract nor increase premium

Question 11

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

Answer 11

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 12

How are S&S and deductible recoveries treated for loss reserves of long term contracts?

Answer 12

• Loss reserves may be reduced for expected S&S recoveries

- Loss reserves can only be reduced for deductible recoveries if they are securitized

Question 13

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

Answer 13

Net (unless the deductible is deemed to be uncollectible)

Question 14

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

Answer 14

• 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 15

What should financial statements disclose about high deductible policies?

Answer 15

• Reserve credit on unpaid claims

- Amounts that have been billed and are recoverable on paid claims

Question 16

When do dividends to policyholders become liabilities:

Answer 16

When they are declared

Question 17

What needs to be disclosed if insurer is potentially exposed to asbestos or environmental claims?

Answer 17

• reserving methodology
• amount paid & reserved for loss and LAE
• description of the LOB where there is potential exposure.