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Indemnification agreements relating to the adequacy of acquired claim liabilities obtained concurrent with a business combination, including those in the form of reinsurance contracts, are accounted for on the acquisition date consistent with other indemnification assets in accordance with ASC 805-20-25-27 through ASC 805-20-25-28 (per ASC 944-805-25-5) and not treated as retroactive reinsurance. In contrast, reinsurance agreements entered into subsequent to the acquisition date are accounted for as ceded reinsurance transactions, including application of retroactive reinsurance guidance. The guidance in ASC 944-805 on indemnification agreements obtained concurrent with a business combination is a more concise version of the guidance originally issued by the EITF in 1996 and 1997. The original guidance provided examples of both a direct seller indemnification and a seller indemnification achieved through negotiation of a reinsurance contract with a third-party reinsurer contemporaneous with, and in contemplation of, the business combination. Despite the fact that the specific examples have not been carried forward to ASC 805, we believe both of those indemnifications would continue to be accounted for under ASC 805-20-25-27 through ASC 805-20-25-28.
In subsequent accounting periods, any asset relating to an indemnification agreement existing at the acquisition date would be measured on the same basis as the indemnified item to which it relates, subject to any contractual limitations on its amount and an assessment of collectibility under ASC 805-20-35-4. For example, for an indemnification of acquired claim liabilities that are classified as insurance contracts, the measurement of the indemnification asset would be consistent with that of the claim liability.
ASC 944-805-S99 notes that any receivable from the seller relating to an indemnification agreement should not be netted against the related liability in the balance sheet or in supporting information such as footnotes or the disclosures required by SEC Industry Guide 6, Disclosures Concerning Unpaid Claims and Claim Adjustment Expenses of Property Casualty Insurance Underwriters. The SEC staff indicated that although it is preferable to present the effects of the loss guarantee on a gross rather than net basis, it would not object to claim losses and loss adjustment expenses being reported net of the effect of the reserve guarantee in the income statement. A net presentation is appropriate only if the effects of the reserve guarantee are disclosed separately in the notes to the financial statements, in the SEC Industry Guide 6 disclosures including the reconciliation of claims reserves, and in the loss ratio information.
From the perspective of the seller, an indemnification agreement relating to the adequacy of acquired claim liabilities falls within the scope of ASC 460. Therefore, the seller would recognize and measure the fair value of the guarantee and recognize a liability for the obligation. The offsetting entry would likely affect the gain or loss on the transaction as a whole. In addition, the seller would be required to comply with the disclosure requirements of ASC 460-10-50-4 through ASC 460-10-50-6.

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