Loss recognition is the common terminology used to describe a situation in which a premium deficiency exists. ASC 944-60-25-2 through ASC 944-60-25-3 notes that:

"A probable loss on insurance contracts exists if there is a premium deficiency relating to short-duration or long-duration contracts. Insurance contracts shall be grouped consistent with the enterprise's manner of acquiring, servicing, and measuring the profitability of its insurance contracts to determine if a premium deficiency exists."

This guidance (ASC 944-60) discusses the calculation and accounting for a premium deficiency for both short-duration and long-duration contracts.

The grouping of contracts and lines of business for the calculation of a premium sufficiency/deficiency is a very judgmental area. In practice, each situation is based on the facts and circumstances of the insurance company. Once a method of grouping contracts has been established, the method should be applied consistently. A change in the method of grouping contracts, absent a change in the manner in which the company acquires, services or measures the profitability of its insurance contracts, constitutes a change in accounting principle or correction of an error subject to the accounting and reporting requirements of ASC 250, Accounting Changes and Error Corrections.