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ASC 944-60 requires the recognition of a loss when an entity expects a loss on insurance policies based on current cash flow assumptions in excess of recorded amounts. The concept is consistent with the more general loss recognition guidance in ASC 450-20.
For short duration contracts, a loss is recognized when expected claim and claim adjustment costs, expected dividends, unamortized acquisition costs, and maintenance costs exceed recorded unearned premium. For certain long duration contracts, a loss is recognized when existing contract liabilities, together with the present value of future gross premiums, are not sufficient to cover both the present value of future benefits and settlements costs and to recover the unamortized present value of future profits. These long duration contracts do not consider unamortized acquisition costs in the premium deficiency calculation. Loss recognition is the common terminology used to describe a situation in which a premium deficiency exists.
The guidance in ASC 944-60 discusses the calculation and accounting for a premium deficiency for both short-duration and long-duration contracts.

ASC 944-60-25-2

A probable loss on insurance contracts exists if there is a premium deficiency relating to short-duration or long-duration contracts.

ASC 944-60-25-3

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.

The grouping of contracts and lines of business for the premium deficiency determination is a judgmental area. In practice, each situation is based on the specific facts and circumstances of the company. Once a method of grouping contracts has been established, that 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.
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