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Definitions from ASC 944-40-20
Salvage: The amount received by an insurer from the sale of property (usually damaged) on which the insurer has paid a total claim to the insured and has obtained title to the property.
Subrogation: The right of an insurer to pursue any course of recovery of damages, in its name or in the name of the policyholder, against a third party who is liable for costs relating to an insured event that have been paid by the insurer.
Excerpt from ASC 944-20-S99-1
The following is the text of SAB Topic 5.N, Discounting by Property-Casualty Insurance Companies.
Facts: A registrant which is an insurance company discounts certain unpaid claims liabilities related to short-duration FN9 insurance contracts for purposes of reporting to state regulatory authorities, using discount rates permitted or prescribed by those authorities ("statutory rates") which approximate 3 1/2 percent. The registrant follows the same practice in preparing its financial statements in accordance with GAAP. It proposes to change for GAAP purposes, to using a discount rate related to the historical yield on its investment portfolio ("investment related rate") which is represented to approximate 7 percent, and to account for the change as a change in accounting estimate, applying the investment related rate to claims settled in the current and subsequent years while the statutory rate would continue to be applied to claims settled in all prior years.
FN9 The term "short-duration" refers to the period of coverage (see FASB ASC paragraph 944-20-15-7 (Financial Services—Insurance Topic), not the period that the liabilities are expected to be outstanding.
Question 1: What is the staff's position with respect to discounting claims liabilities related to short-duration insurance contracts?
Interpretive Response: The staff is aware of efforts by the accounting profession to assess the circumstances under which discounting may be appropriate in financial statements. Pending authoritative guidance resulting from those efforts however, the staff will raise no objection if a registrant follows a policy for GAAP reporting purposes of:
Discounting liabilities for unpaid claims and claim adjustment expenses at the same rates that it uses for reporting to state regulatory authorities with respect to the same claims liabilities, or
Discounting liabilities with respect to settled claims under the following circumstances:
(1) The payment pattern and ultimate cost are fixed and determinable on an individual claim basis, and
(2) The discount rate used is reasonable on the facts and circumstances applicable to the registrant at the time the claims are settled.
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Excerpt from ASC 825-10-25-7
The fair value option may be elected for a single eligible item without electing it for other identical items with the following four exceptions:
a. ...
b. ...
c. If the fair value option is applied to an eligible insurance or reinsurance contract, it shall be applied to all claims and obligations under the contract.
d. If the fair value option is elected for an insurance contract (base contract) for which integrated or nonintegrated contract features or coverages (some of which are called riders) are issued either concurrently or subsequently, the fair value option also must be applied to those features or coverages. The fair value option cannot be elected for only the nonintegrated contract features or coverages, even though those features or coverages are accounted for separately under Subtopic 944-30. Paragraph 944-30-35-30 defines a nonintegrated contract feature in an insurance contract. For purposes of applying this Subtopic, neither an integrated contract feature or coverage nor a nonintegrated contract feature or coverage qualifies as a separate instrument.
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