Re: Statutory Accounting for Loss Sensitive Contracts
Sholom Feldblum ( plashoto@erols.com )
Sun, 27 Dec 1998 17:28:30 -0600
Jerry Tuttle wrote:
>
> 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
>
> Visit the CAS Web Site at http://www.casact.org
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*****
Of course. In fact, if you book the "conservative amount" you run into
trouble with the IRS, since you are underestimating income. Tax
accounting follows the statutory statement here. Thus, there is no
difference between statutory accounting and GAAP.
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