TIA Section A - NAIC SSAPs Flashcards
3 components of liabilities
1️⃣ Present responsibility to transfer/use assets at a specified determinable date based on the occurrence of a specified event on demand
2️⃣ The entity has little or no discretion to avoid the responsibility
3️⃣ The transaction/event that obligates the entity has already occurred
Define loss contingency/asset impairment
An existing condition involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur
Two necessary criteria to charge a loss contingency/ asset impairment to operations
1️⃣ Information prior to the issuance of the financial statements indicates that the assets has been impaired/liability incurred at the date of the financial statements
2️⃣ The amount of the loss can be reasonably estimated
How should management book the reserve if there is a range
🔸If a particular amount within the range appears to be a better estimate, that amount should be booked
🔹If no amount in the range appears to be better than the others, the midpoint should be booked
How should management book the reserves if there is no range
The best estimate should be booked
Criteria to make a disclosure about loss contingency/ asset impairment
🔵 A contingency/asset impairment is not recorded because only one of the two conditions is met
🟢 There is an exposure to loss higher than the amount accrued
Two disclosures that need to be made regarding loss contingency/asset impairment
✔️ Nature of the contingency
✔️ Estimate of the possible loss or range of loss. Or when a statement that such an estimate can not be made
Disclosures that need to be made for each joint and several liability arrangement
🏔 Nature of agreement
🧾 Total outstanding amount under the arrangement
📃 Carrying amount of the insurers liability and carrying amount of the receivable recognized
🌲 Nature of any recourse provisions that would enable recovery from other entities of the amounts paid, including any limitations on the amounts that may be recovered
🔴 In the period where the liability was initially recognized and measured or the period in which the measurement changes significantly: the corresponding entry where entry was recorded in the financials
Define subsequent events
Events that occur subsequent to balance sheet date, but before the issuance of the statutory financial statements
Two categories of subsequent events
Type 1️⃣: Recognized Subsequent Events: provide additional evidence with respect to conditions that existed at the date of the balance sheet
Type 2️⃣: Non-recognized Subsequent Events: provide evidence with respect to conditions that did not exist at the date of the balance sheet
Which events should already be reflected in the financial statements
Type 1️⃣
Disclosures about Type 2️⃣ in the financials statements
🏔 Nature of the event
📃 Estimate of it’s financial impact or a statement that the estimate can not be made
When is Written Premium recorded for list contracts and what is the exception to it’s rule?
✔️ Effective date
✔️ Exception of WC which can be recorded in an installment basis
When are additional premium for endorsements and changes in coverage recorded?
Effective date of change
Two methods to uniformly earn premium throughout the year:
1️⃣ Daily Pro Rata: compares the number of days which have elapsed to the number remaining
2️⃣ Monthly Pro Rata: assumes the same amount of business written on any day of the month and therefore the mean will be written in the middle of the month
Accounting treatment of flat fees
Included in “other income”
