Statement of Fin acctg Standards 60 (FAS60)

Question 1

1. Premium Revenue Recognition

2. Claim Cost Recognition

Answer 1

1. Premium revenue recognition
   
   1. 1 Short-duration contracts
      
      1. 1.1 premiums are recognized as revenue evenly over the contract period
      2. 1.2 If prem subject to adjustment recognize the estimated ultimate premium, revised to reflect current experience
   2. 2 Long-duration contracts
      
      1. 2.1 Premium shall be recognized as revenue when due from policyholders
2. Claim Cost Recognition
   
   2. 1 Liability for unpaid claim costs including IBnR shall be accrued when insured events occur
   3. 2 Claim adjustment expenses (CAE)
      
      2. 2.1 Shall be accrued when related liability for unpaid claims is accrued

Question 2

Liability for future policy benefits

Answer 2

1. Accrued when premium revenue is recognized
2. PV(future benefits) - PV(future net premiums)
3. Assumptions: investment yields, mortality, morbidity, terminations, expenses
4. Include provision for the risk of adverse deviation (PAD)
5. Original assumptions shall continue to be used unless a premium deficiency exists
6. Changes in the liability shall be recognized in income

Question 3

Acquisition costs

Answer 3

1. Acquisition costs shall be capitalized and charged to expense in proportion to premium revenue recognized
   
   1. 1 Unamortized acquisition costs shall be classified as an asset
2. For short-duration contracts, a percentage can be applied to unearned premiums throughout the period to calculate the Unamortized acquisition costs
3. For long-duration contracts, use actual acquisition costs as amount capitalized

Question 4

Premium Deficiency

Answer 4

1. Contracts shall be grouped consistent with manner of acquiring, servicing, and measuring profitability to determine if prem deficiency exists
2. Short-term contracts
   
   2. 1 Prem deficiency recognized if sum of expected claims, CAE, expected dividends, Unamortized acquisition costs, and maintenance costs > unearned prem
3. Long-duration contracts
   
   3. 1 A premium deficiency shall be determined as follows
      
      3. 1.1 PV of future benefits and related settlement and maintenance costs
      4. 1.2 Less the PV of future gross premium
      5. 1.3 Less the liability for future policy benefits at the valuation date
      6. 1.4 Plus Unamortized acquisition costs
   4. 2 Premium deficiency shall be recognized by charge to income and:
      
      3. 2.1 A reduction of Unamortized acq costs, or
      4. 2.2 Increase in the liability
   5. 3 A premium deficiency shall be recognized if aggregate liability on a line of business is deficient
      
      3. 3.1 also, if profits would be recognized in early years and losses later

Question 5

Disclosures:

Insurers shall disclose the following in financial statements

Answer 5

1. The basis for estimating claim liabilities and claims adjustment expenses (CAE)
2. Methods and assumptions for future policy benefit liability
3. Acquisition costs capitalized, amortization, and method
4. Whether investment income is considered relating to short duration contracts
5. Reinsurance assumed and ceded, and recoverable that reduce liabilities
6. Percentage of participating insurance and the amount of dividends
7. The amount of statutory capital, and the amount necessary to satisfy regulatory requirements