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Reported reserve vs. Claim liability, disclosure requirement
- Reported reserve = net claim liabilities carried (on BS)
- Claim liability = net claim liabilities according to AAP
- Both net of reinsurance / S&S
- AA report needs to disclose
- both figures
- claims liability calculation steps
- reported reserves mgt selected and reasons if dif materially from claims liability (dif > AA materiality standard)
- reported reserves can NOT be smaller than the claim liability
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Asset for Future income Taxes
- recognize prepayment of tax as liability deduction for tax purpose is smaller than reported reserves
- only 95% of min (reported reserve, liability) will be deducted (when claims settle, but income tax is paid on all), leaving a tax dif
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Effect of Discounting the Asset for Future Income Taxes
- Where the effect (related to policy liabilities) is material, estimate of policy liabilities should be reduced accordingly.
- [Reported Reserve – 95% x min (Reported Reserv, Claim Liability)] x Future Income Tax Rate x (1 – PV)
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