Statutory Accounting for Loss Sensitive Contracts

Jerry Tuttle ( (no email) )
Sun, 27 Dec 1998 12:01:53 EST

Question: If I am an insurance company with a
loss sensitive contract (which could be a
retrospectively rated contract with my insured or
a retrospectively rated or sliding scale
commission contract with my reinsurer, or other
possibilities), shouldn't I for statutory purposes
book my best estimate of ultimate loss AND the
corresponding estimate of ultimate premium or
ultimate commission that matches the loss
estimate?

Several people have said that ultimate premium or
ultimate commission should be booked at its
most conservative, worst case amount, or else
you could be overstating assets.

Isn't the fundamental accounting principle that
revenues and costs should match?

Is the answer to the original question different for
GAAP accounting?

Thanks,
Jerry Tuttle

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