SSAPs

Question 1

Formal Def of Liabilites

Answer 1

“Certain or probable future sacrifices of economic benefits arising from present
obligations of a particular entity to transfer assets or to provide services to other
entities in the future as a result of a past transaction(s) or event(s)”

Question 2

3 Essential Components of a liability

Answer 2

1) Present responsibility to transfer/use assets at specified date based on occurrence of specified event or demand

2) Entity has little/no discretion to avoid the responsibility

3) The transaction/event that obligates the entity has already occurred

Question 3

SSAP 5

Answer 3

Liabilites/Contingencies

Question 4

SSAP 9

Answer 4

Subsequent Events

Question 5

Loss Contigencies / Asset Impairment Def

Answer 5

“An existing condition, situation or set of circumstances involving uncertainty as to possible loss to an enterprise that will ultimately be resolved when one or more future event(s) occur or fail to occur”

Question 6

Conditions to Recognize Loss as Contingency/Impairment

Answer 6

1 Info prior to issuance of financial statements indicate assets have been impaired / liability incurred at date of the
financial statements
2 Amount of loss can be reasonably estimated (If multiple estimates, best possible estimate should be used)

Question 7

Joint & Several Liability Arrangements

Answer 7

Definition: Agreements where multiple parties share liability

Question 8

Fixed Total Obligation Formula

Answer 8

Amount insurer agreed to pay based on
agreements with co-obligors
+
Any additional amount insurer expects to pay on
behalf of co-obligors

Question 9

3 levels of loss contingency / asset impairment

Answer 9

• probable (likely to occur)
  
  • reasonably possible (between probably and remote)
  • remote (slight chance of occurring)

Question 10

Type 1 subsequent event (recognized)

Answer 10

provide evidence with respect to : Conditions that DID exist at date of balance sheet, but new info arose after
Financial statements need to be adjusted to
reflect the impact of material Type 1 events
(disclosure optional)

Question 11

Subsequent Event def

Answer 11

“Events or transactions that occur subsequent to the balance sheet date, but before
the issuance of the statutory financial statements and before the date the audited
financial statements are issued, or available to be issued”

Question 12

Type 2 subsequent event (unrecognized)

Answer 12

provide evidence with respect to : Conditions that DID NOT exist at date of balance sheet,but arose after
Notes should disclose both the nature of the event and
an estimate of financial impact

Question 13

SSAP 53

Answer 13

P&C Contracts - Premiums

Question 14

Additional
Premium
Charges

Answer 14

Charges for endorsements
and changes in coverage

Recorded on effective date of endorsement or change; must be reflected in
UEPR

Question 15

Flat Fees

Answer 15

Flat service charges on
installment premiums

Usually recorded as “Other Income”, but can be recorded as WP if:
● Policy can be cancelled for non-payment of fee, OR
● Fee is refundable in event that policy is cancelled

Question 16

Earned but
Unbilled
Premium
(EBUB)

Answer 16

Arises from policies with
audited exposures (e.g. WC)
● EBUB is est. prior to audit → reflected in premium revenue
● EBUB is adjusted after audit
- Must recognize all liabilities too such as premium taxes
● Collateral may be held for credit risk
- 10% of EBUB excess of collateral held is non-admitted

Question 17

Earned but
Uncollected
Premium

Answer 17

Arises from policies which
have been cancelled but have
a longer cancellation period

Must establish Earned but Uncollected Premium as direct and assumed
written premium → if determined uncollectible, should be charged to
expenses as Net Gain (Loss) from Balances Charged Off

Question 18

Advance
Premiums

Answer 18

Premiums paid prior to
effective date of policy

Recorded as liability → Should not be considered income or WP until due

Question 19

SSAP 55

Answer 19

Unpaid Claims

Question 20

Recognizing Losses

Answer 20

o When insured event occurs:
▪ Loss & LAE must be recognized as expense
▪ Liabilities must be established for unpaid losses and expenses (loss & LAE
reserves)
▪ Insurer must recognize corresponding change in income

Question 21

DCC

Answer 21

All costs associated with litigation, defense,
and medical cost containment

Question 22

A&O

Answer 22

Remaining LAE (for adjusters, pool
participation expenses, etc.)

Question 23

SSAP 63

Answer 23

Underwriting pools

Question 24

Involuntary Pool (residual market plans)

Answer 24

Method for states to provide
coverage to parties with higher-than average losses who would otherwise
be unable to obtain coverage

Question 25

Voluntary Pool

Answer 25

-Not state mandated
Focused on providing more capacity for risks with exceptionally
high insurable values (e.g. aircrafts)

Question 26

Intercompany Pooling

Answer 26

● Establishment of quota share reinsurance agreement where all
business ceded to lead entity → retroceded to other participants
● Participants able to use different assumptions for recording
transactions, but timing of recording must be consistent

Question 27

Pool Participation

Answer 27

o Participation may be on Joint & Several Basis:
▪ In addition to normal share of liability, participants responsible for portion of unrecoverable obligations
uw results on a gross basis

Question 28

Disclosures of Intercompany Pools

Answer 28

Lead Insurer and all affiliated entites
descriptions of basic terms, cessions to non-affiliated reinsurers,
explanation of discrepancies between entities, amounts due to lead insurer from all affiliates

Question 29

SSAP65

Answer 29

P&C Contracts

Question 30

Main types of P&C Contracts

Answer 30

Occurrence
Claims-Made
Extended Reporting (Tail Coverage)

Question 31

Exceptions to no reserve discounting

Answer 31

fixed and reasonably determinable payment patterns (e.g. tabular
discounts)
▪ If tabular discounts are used, they do not apply to LAE reserve
o A change in discount is classified as “Change in Estimate” → Impact of change must be included in income statement

Question 32

Interest Accretion

Answer 32

Increase in discounted value due to reduction in discount

Question 33

Structured Settlement Accounting Treatment

Answer 33

when the insurer purchases an annuity to on behalf of claimant to settle a claim (WC / GL claims)
- if insurer is the payee ==> no reduction to reserve
- if claimant is the payee ==> reserves are reduced in the amount that the annuity provides for funding of future payments

Question 34

High Deductible Policies

Answer 34

This is when the insurer pays all claims up front and then seeks reimbursement from the
insured for the portion under the deductible
Reserves should be established for all losses, not just those above deductible
▪ Losses under the deductible may eventually breach the deductible
book reserves net of the deductible

Question 35

High Deductible Policies if insurers does not hold collateral

Answer 35

● Deductible Recoveries > 90 Days
Overdue are Nonadmitted
● Aging should be based on contractual
date (or billing date if no contractual date)

Question 36

High Deductible Policies if insurers DOES hold collateral

Answer 36

10% of Deductible Recoverable in Excess of Collateral is Nonadmitted
- Any amounts XS of this 10% deemed uncollectible should also be
classified as Nonadmitted

Sometimes collateral secures amount owed for multiple policies

Question 37

Long Duration Contract

Answer 37

Criteria for contracts
▪ ≥ 13 months in duration
▪ Cannot be cancelled or subject to premium increases

o Revenue usually not received in proportion with exposures → Adequate UEPR needs to
be established, which can be challenging
▪ SSAP outlines three tests that can be applied

Question 38

Test 1 Long-Duration Contracts

Answer 38

management’s best estimate of the amounts refundable to the contract-holders at the reporting date

Question 39

Test 2 Long-Duration Contracts

Answer 39

(gross premium) x [ (projected future loss) / (projected total loss) ]

projected future loss relates to the unexpired term of the contract

Question 40

Test 3 Long-Duration Contracts

Answer 40

(projected future loss) – (investment income) – (PV of premiums)

Question 41

Calculating UEP for Long-Duration Contract

Answer 41

for current and 2 prior years, tax max of all three test amount
for years before then, aggregate them and then take the max of the aggregated amounts

Question 42

Retrospectively Rated Contract

Answer 42

Contract in which final premium is based on insureds loss experience
▪ Contract generates additional or return premium at expiration depending on
experience
o Future adjustments to premium should be estimated

Question 43

SSAP 66

Answer 43

Retrospectively Rated Contracts

Question 44

2 ways to estimate adjustments to premium

Answer 44

actuarial accepted - historical ratios of development to EP
review each contract individually : compare known to anticipated loss development (including IBNR) to estimate return or additional premium earned at that point in time

Question 45

briefly describe the accounting treatment of “accrued additional” & “accrued return” retrospective premium

Answer 45

accrued additional retrospective premium
→ record as a receivable
→ with a corresponding entry in written premium or an adjustment to earned premium

accrued return retrospective premium
→ record as a liability (as a change in unearned premium)
→ with a corresponding entry in written premium or an adjustment to earned premium (same as for accr ed additional premium)

Question 46

identify required financial statement disclosures regarding retrospectively rated poli

Answer 46

-estimation method for premium adjustments (recall from above that there are 2 methods for doing this)

-accounting method for premium adjustments (whether through written premium or an adjustment to earned premium)

-amount & proportion of net premiums subject to retrospective

-adjustments (a high proportion increases uncertainty of final costs)
calculation of non-admitted retrospective premium