SSAPs

Question 1

three essential features of a liability [SSAP 5R]

Answer 1

• represents a present duty to transfer assets at a future specified date, on occurrence of a specified event, or on demand
• the duty obligates the entity, leaving it little discretion to avoid future sacrifice of economic benefits
• the event that obligates the entity has already occurred

Question 2

describe joint and several liability arrangements [SSAP 5R]

Answer 2

more than one entity is obligated; report the amount the entity agreed to pay plus any amount they expect to pay on behalf of co-obligors

Question 3

describe loss contingency or asset impairment [SSAP 5R]

Answer 3

an existing condition involving uncertainty as to possible loss that will be resolved when future events occur or fail to occur

Question 4

two necessary criteria to charge loss contingency or asset impairment to operations [SSAP 5]

Answer 4

1) information prior to the issuance of the financial statements indicates that it is probable the assets have been impaired or liability incurred as of the financial statement date
2) amount can be reasonably estimated

Question 5

required disclosures for liabilities, loss contingencies, impairment of assets [SSAP 5] (5)

Answer 5

• joint and several liability arrangements
• contingency or asset impairment that is reasonably possible but wasn’t recorded because only one of the two conditions were met
• reasonably possible exposure to loss higher than the amount accrued
• contingency involving a guarantee (e.g. guarantees of indebtedness of others), even if possibility of loss is remote
• gain contingencies, but do not overstate likelihood of the gain occurring

Question 6

define subsequent events [SSAP 9]

Answer 6

events or transactions that occur:

• after the balance sheet date
• before the issuance of statutory financial statements
• before audited financial statements are issued or available to be issued

Question 7

two types of subsequent events [SSAP 9]

Answer 7

Type I – Recognized Subsequent Events – additional evidence of conditions that existed at the balance sheet date
Type II – Nonrecognized Subsequent Events – evidence of conditions that arose after the balance sheet date

Question 8

required disclosures for subsequent events [SSAP 9]

Answer 8

Type I: adjust financial statements; disclose adjustment only if necessary to keep the financial statements from being misleading
Type II: do not adjust financial statements; disclose the nature of the events and estimate of financial impact

Question 9

when written premium is recorded for most contracts, and one exception [SSAP 53]

Answer 9

• record written premium on the policy effective date

* for work comp contracts with installment billing, record written premium to match billing frequency

Question 10

when additional premium for endorsements or change in coverage is recorded [SSAP 53]

Answer 10

• record on the effective date of the change

Question 11

two methods to recognize revenue evenly over the risk period [SSAP 53]

Answer 11

• daily pro rata method – calculate unearned premium on each policy by comparing elapsed days to days remaining
• monthly pro rata method – assume the same amount of business is written on each day of the month so the “mean” writing is at the middle of the month

Question 12

how flat fee service charges for installment premium reported [SSAP 53]

Answer 12

as other income

Question 13

accounting treatment of earned but unbilled premium (EBUB) [SSAP 53]

Answer 13

• prior to audit, estimate EBUB and record it as an adjustment to premium
• when the audit is complete and final premium is determined, earned premium adjustment is recognized immediately

Question 14

determination of non-admitted EBUB [SSAP 53]

Answer 14

10% of EBUB in excess of collateral is nonadmitted

Question 15

accounting treatment of advance premium [SSAP 53]

Answer 15

recorded as a liability and not considered income until due

Question 16

how policies are grouped for calculating a premium deficiency reserve (PDR) [SSAP 53]

Answer 16

according to how they are marketed, serviced, and measured; deficiencies in one group cannot be offset by future profits in another group

Question 17

two categories of loss adjustment expense (LAE) [SSAP 55]

Answer 17

• defense and cost containment (DCC)

* adjusting and other (A&O)

Question 18

disclosures for unpaid loss & LAE estimate (8) [SSAP 55]

Answer 18

• beginning and ending balances for LLAE reserve
• incurred during the year, separately for current year and prior years
• paid during the year, separately for current year and prior years
• reasons for changes in prior year reserves, and whether there are additional premiums
• summary of methodologies
• amount paid and reserved for asbestos and other environmental claims
• anticipated salvage and subrogation recoveries
• losses paid and number of claims resulting from extra contractual obligations or bad faith lawsuits

Question 19

three reporting bases for events covered by P&C contracts [SSAP 65]

Answer 19

• occurrence
• claims-made
• extended reporting

Question 20

how premium for tail coverage for an indefinite period is recorded [SSAP 65]

Answer 20

• premium is fully earned immediately

* liability for unreported claims recognized immediately

Question 21

how premium for tail coverage for a fixed period is recorded [SSAP 65]

Answer 21

• premium earned over the period

* losses recorded when reported

Question 22

describe non-purchased extended reporting endorsement (ERE) [SSAP 65]

Answer 22

tail coverage on a claims-made policy provided in the event of death, disability, or retirement at no additional charge

Question 23

how premium for non-purchased extended reporting endorsement ERE is recorded [SSAP 65]

Answer 23

reserve is established to ensure premiums are not earned prematurely, classified as UEPR

Question 24

when discounting of reserves is permitted (3) [SSAP 65]

Answer 24

• workers comp tabular indemnity reserves
• long-term disability claims
• non-tabular reserves if and only if allowed by the state regulator

Question 25

disclosures required for discounting (5) [SSAP 65]

Answer 25

• tables used
• rates used
• amount of discounted liabilities
• amount of tabular discount by line and reserve category
• changes to key assumptions, such as rates or payout patterns

Question 26

three tests gross UEPR for policies with coverage periods ≥ 13 months (home warranty, mechanical breakdown) must be at least the largest of [SSAP 64]

Answer 26

for each of the three most recent policy years, and combined for all policy years prior to the 3 most recent:
Test 1 - management’s best estimate of unexpired premium
Test 2 - gross premium*(projected FUTURE gross losses and expenses)/(projected TOTAL gross losses and expenses)
Test 3 - present value of future gross losses and expenses less present value of future guaranteed premiums

Question 27

accounting treatment of annuity owned by insurer to pay structured settlement [SSAP 65]

Answer 27

• no reduction to loss reserves
• record annuities at present values as other-than-invested assets
• record income as miscellaneous income

Question 28

accounting treatment of annuity owned by claimant to pay structured settlement [SSAP 65]

Answer 28

• reserves reduced to the extent the annuities fund future payments
• cost of annuities recorded as paid loss
• GAAP requires deferral of any gain resulting from the purchase of the annuity; SAP allows immediate recognition of gain

Question 29

disclosures required for structured settlements [SSAP 65]

Answer 29

• amount of reserves the insurer no longer needs to carry because it purchased annuities with the claimant as payee
• extent to which the insurer is liable for released reserves if the annuity fails to perform
• details of annuities with no release of liability from a single life insurer if exceeding 1% of surplus

Question 30

when deductible recoverables on high deductible policies are non-admitted [SSAP 65]

Answer 30

• if the insurer does not hold collateral, then deductible recoverables > 90 days old are non-admitted
• if the insurer does hold collateral, 10% (or more if needed) of deductible recoverables in excess of the held collateral is non-admitted, with no aging requirement used

Question 31

disclosures required for asbestos and environmental reserves [SSAP 65] (4)

Answer 31

• amount paid and reserved for LLAE on direct, assumed, and net of reinsurance bases
• beginning and ending reserves, incurred LLAE, and calendar year paid LLAE, for the 5 most recent calendar years, on both gross and net of reinsurance bases
• reserve methodology for case and IBNR reserves
• description of lines with potential exposure

Question 32

three types of underwriting pools and associations [SSAP 63]

Answer 32

• involuntary
• voluntary
• intercompany

Question 33

two ways underwriting pools may be serviced [SSAP 63]

Answer 33

• one or more servicing carriers

* pool manager

Question 34

three disclosures for intercompany pooling arrangements [SSAP 63] (4)

Answer 34

• description of the arrangement and related accounting
• identification of lead entity and all affiliated entities that participate, along with their pooling percentages
• description of lines and type of business in the pooling agreement
• description of cessions to any non-affiliated reinsurers, and whether the cessions were before or
  after the cession of pooled business

Question 35

where intercompany pooling is discussed in SAO [SSAP 63]

Answer 35

• Scope section: description of the intercompany pool, identification of lead company, state of domicile, and pooling percentages
• Relevant Comments section: voluntary and/or involuntary underwriting pools and associations

Question 36

describe retrospectively rated contract [SSAP 66]

Answer 36

contract which has the final policy premium calculated based on the loss experience of the insured during the term of the policy

Question 37

two methods for recognizing retrospective premium adjustments [SSAP 66]

Answer 37

1) use of actuarial methods as filed and approved for the retrospective rating plan
2) review each individual retrospectively rated risk to arrive at best estimate of additional premium returned or earned

Question 38

accounting treatment of accrued additional retrospective premium [SSAP 66]

Answer 38

recorded as a receivable with a corresponding entry either to written premium or as an adjustment to earned premium

Question 39

accounting treatment of accrued returned retrospective premium [SSAP 66]

Answer 39

recorded as part of the change in unearned

premium liability with a corresponding entry made either to written premiums or as an adjustment to earned premiums

Question 40

procedure for determining the amount of accrued estimated retrospective premiums recorded as non-admitted [SSAP 66]

Answer 40

1) if coming from a party whose agents’ balances or uncollected premiums are non-admitted, then 100% non-admitted
2) if not billed according to policy provisions, then non-admitted
3) for other retrospective premiums not offset by retrospective return premiums, other liabilities
to the same party, or collateral, then elect either 10% or an amount calculated using factors that vary by corporate debt grade

Question 41

disclosures for retrospective premium adjustments [SSAP 66] (4)

Answer 41

• method used to estimate retrospective premium adjustments
• amount of net written premium subject to retrospective rating
• whether adjustments are recorded as written premium or as an adjustment to earned premium
• calculation of non-admitted retrospective premium