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Preparing the disclosures related to insurance loss reserves, specifically short-duration contract disclosures, often requires significant judgment on the part of management. SEC staff comments have continued to focus on these judgments, and have asked registrants to:
  • explain the appropriateness of the level of aggregation of information disclosed in the short-duration contract tables, including the sufficiency of data used to support aggregation, especially when information across reporting segments or products is being combined;
  • reconcile information disclosed in the short-duration contract tables, including loss development, to information presented elsewhere by the company (e.g., other tables/disclosures in the filing, company website presentation, earnings call communications); and
  • explain the underlying reasons for the change in incurred claims and claim adjustment expenses recognized in the income statement attributable to insured events of prior fiscal years.
Comment Examples
Guidance references
  • We note that the objective of the short-duration disclosures as outlined in paragraph BC 2 of ASU 2015-09 is to provide financial statement users with information to facilitate analysis of the amount, timing, and uncertainty of cash flows arising from insurance contracts and the development of loss reserve estimates. Please address the following:
    • Explain to us, and revise your disclosures in future filings to provide a more granular discussion of the differences relating the favorable assessments and claims paid. It might be useful to provide a reconciliation to support your discussion.
    • Explain to us the lines of business not included in your disclosure and quantify the prior year development for those lines.
    • Explain why you do not include the lines of business identified in the preceding bullet in your tables, and provide your consideration for disclosing such information.
  • The descriptions of the various insurance business lines within each of your segments makes it seem likely that some of these business lines are likely to experience different loss trends. Further, your disclosure of the trend information includes significant offsetting trends of favorable versus unfavorable development. Please address the following:
    • Tell us how you considered the guidance of ASC 944-40-50-4H when determining to aggregate your short-duration loss tables at the reportable segment level, including the prohibition of aggregating items that have significantly different characteristics. Specifically address how you considered the respective characteristics of the business units that are aggregated within a segment and determined that they did not have significantly different characteristics. Further, within your operating units, you have aggregated various product lines. Tell us how you determined that these lines do not have significantly different characteristics.
    • Provide us with a breakdown quantifying the net premiums, losses incurred, loss development and ending reserve liabilities for the last two years by each of these business units and product line categories. Also, provide us with the average annual percentage payout of incurred claims of incurred loss and allocated loss adjustment expenses, that is, the history of claims duration by age, for each of these business units and product line categories.
  • You disclose unfavorable prior year development on incurred claims. Given that this amount is significant to your pre-tax income, please tell us how your disclosure provides useful information to financial statement users to facilitate their analysis of the amount, timing, and uncertainty of cash flows arising from insurance contracts and the development of the liability for unpaid claims consistent with the objective outlined in paragraph BC 2 of ASU 2015-09. In your response tell us how your disclosure complies with the guidance in ASC 944-40-50-3. In this regard, your disclosure appears to merely identify prior year development but fails to explain the underlying reasons for this development.
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