1. Short-Duration vs. Long-Duration Insurance Contracts
    • 1. Short-Duration insurance contracts
    • a) Most P/C contracts, term life insurance policies
    • b) Insurer usually can cancel policy, revise premium, adjust provisions, or coverages at renewal
    • c) Premiums are usually earned evenly over policy period
    • d) Liability for unpaid claims and LAE accrued when events occur
    • 2. Long-Duration insurance contracts
    • a) Most life insurance contracts, whole-life, endowment contracts, annuity contracts
    • b) Contract generally not subject to changes in provisions
    • c) Premiums are generally level throughout, even though expected benefi ts are not
    • d) Premiums are earned over the premium paying period of the contract when due from the policyholder
    • e) Liabilities are accrued over the current and expected renewal periods of the contracts
  2. Premium De ficiency
    • 1. Purpose is to reflect any perceived shortfall in unearned premium to cover all associated loss and expenses with a block of policies
    • 2. Recognized if sum of expected claim costs and LAE, expected dividends to policyholders, unamortized acquisition costs, and maintenance costs exceeds related unearned premiums
  3. Disclosures in Financial Statements
    • 1. Basis for estimating the liabilities for unpaid claims and claim adjustment expenses
    • 2. Carrying amount of liabilities for unpaid claims and claim adjustment expenses presented at present value in the fi nancial statements and range of interest rates used to discount
    • 3. Whether investment income is considered in determining premium de fficiency
    • 4. Nature and signifi cance of reinsurance transactions, including assumed and ceded premiums and amount recoverable
    • 5. Information on capital and surplus
Card Set