ASC

ASC 405-30

Insurance-Related Assessments

405 Liabilities

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In brief

IntermediateRecognitionSubsequent measurementContingencies and guaranteesIndustry-specific

ASC 405-30 governs when and how entities—insurers and self-insurers alike—accrue liabilities for statutory or regulatory insurance-related assessments such as state guaranty-fund assessments, insurance department administrative assessments, and workers' compensation second-injury fund assessments. A liability is recognized only when an assessment is probable, the obligating event has occurred by the balance sheet date, and the amount is reasonably estimable (405-30-25-1); the obligating event differs by assessment mechanism (retrospective vs. prospective vs. prefunded premium-based, and loss-based). Related recoveries via premium tax offsets or policy surcharges are recognized as assets when probable (405-30-25-8), but recoveries expected only through future premium rate structures are not (405-30-25-10).

Key points (7)
  • A liability is accrued only when all three conditions are met: probability of assessment, occurrence of the obligating event on or before the financial statement date, and ability to reasonably estimate the amount (405-30-25-1).
  • Premium-based guaranty-fund assessments (other than prefunded) are presumed probable upon a formal determination of insolvency and presumed not probable before it; prefunded and premium-based administrative assessments are probable when the underlying premiums are written, and loss-based assessments when the losses are incurred (405-30-25-2 through 25-3).
  • The obligating event for premium-based assessments is generally writing (or becoming obligated to write or renew) the premiums, but is the insolvency itself where state law or regulatory practice means the entity cannot avoid the assessment by ceasing to write premiums; for loss-based assessments it is incurring the losses (405-30-25-4).
  • For retrospective-premium-based assessments the entire estimated future assessment for an insolvency is accrued upon formal determination of insolvency, because the obligating premium has already been written (405-30-25-6(a)); prospective-premium-based assessments are accrued as premiums are written unless unavoidable (405-30-25-6(b)).
  • If the estimate is a range with no better estimate within it, the minimum amount is accrued; if a best estimate exists, that amount is recorded (405-30-25-5; 405-30-30-8).
  • An asset for premium tax offsets or policy surcharges is recognized when probable, measured on current laws and in-force policies (excluding expected renewals of short-duration contracts but reflecting persistency for long-duration contracts), subject to a valuation allowance; no asset is recorded for recovery through future premium rate structures (405-30-25-8 through 25-10; 405-30-30-11; 405-30-35-1).
  • Discounting of the liability (and asset) is optional where the amount and timing of cash flows are fixed or reliably determinable; disclosure of discounted vs. undiscounted amounts, discount rate, and expected payment/realization periods is required (405-30-30-9 through 30-12; 405-30-50-1).

For students. The exam trap is conflating the event that makes an assessment probable (usually the insolvency) with the event that obligates the entity (usually writing the premium)—for prospective-premium-based assessments an insurer that can stop writing business accrues only for premiums already written, whereas a retrospective assessment is accrued in full at insolvency. Also remember the recovery asymmetry: premium tax offsets and policy surcharges can be assets, but expected recovery through future premium rate structures cannot.

guaranty-fund assessmentobligating eventformal determination of insolvencyretrospective-premium-based assessmentprospective-premium-based assessmentloss-based assessmentpremium tax offsetsecond-injury fund

Machine-generated study aid for ASC 405-30. Check the source paragraphs below.

405-30-00Status

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405-30-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
ReinsuranceAddedAccounting Standards Update No. 2016-1912/14/2016
405-30-05-1AmendedAccounting Standards Update No. 2011-0607/21/2011
405-30-15-3AmendedAccounting Standards Update No. 2016-1912/14/2016
405-30-15-3AmendedAccounting Standards Update No. 2011-0607/21/2011
405-30-30-7AmendedAccounting Standards Update No. 2016-1912/14/2016

405-30-05Overview and Background

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405-30-05-1
Insurance entities as well as noninsurance entities are subject to a variety of assessments related to insurance activities, including those by state guaranty funds and workers' compensation second-injury funds. Some entities may be subject to insurance-related assessments because they self-insure against loss or liability. This Subtopic provides guidance on accounting for insurance-related assessments. The annual fee imposed on health insurers by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (the Acts) is not considered an insurance-related assessment. The accounting for the Acts' fee is addressed in Subtopic 720-50.

State Guaranty Funds

405-30-05-2
States have enacted legislation establishing guaranty funds. The state guaranty funds assess entities licensed to sell insurance in the state to provide for the payment of covered claims or to meet other insurance obligations—subject to prescribed limits—of insolvent insurance entities. The assessments are generally based on premium volume for certain covered lines of business. Most state guaranty funds assess entities for costs related to a particular insolvency after the insolvency occurs. At least one state, however, assesses entities before insolvencies.
405-30-05-3
State guaranty funds use a variety of methods for assessing entities. This Subtopic identifies the following four primary methods of guaranty-fund assessments:
  1. a
    Retrospective-premium-based assessments. Guaranty funds covering benefit payments of insolvent life, annuity, and health insurance entities typically assess entities based on premiums written or received in one or more years before the year of insolvency. Assessments in any year are generally limited to an established percentage of an entity's average premiums for the three years preceding the insolvency. Assessments for a given insolvency may take place over several years.
  2. b
    Prospective-premium-based assessments. Guaranty funds covering claims of insolvent property and casualty insurance entities typically assess entities based on premiums written in one or more years after the insolvency. Assessments in any year are generally limited to an established percentage of an entity's premiums written or received for the year preceding the assessment. Assessments for a given insolvency may take place over several years.
  3. c
    Prefunded-premium-based assessments. At least one state uses this kind of assessment to cover claims of insolvent property and casualty insurance entities. This kind of assessment is intended to prefund the costs of future insolvencies. Assessments are imposed before any particular insolvency and are based on the current level of written premiums. Rates to be applied to future premiums are adjusted as necessary.
  4. d
    Administrative-type assessments. These assessments are typically a flat (annual) amount per entity to fund operations of the guaranty association, regardless of the existence of an insolvency.
405-30-05-4
State laws often allow for recoveries of guaranty-fund assessments by entities subject to assessments through such mechanisms as premium tax offsets, policy surcharges, and future premium rate structures. The policy surcharges referred to in this Subtopic are those surcharges that are intended to provide an opportunity for assessed entities to recover some or all of the amounts assessed over a period of time.

Other Insurance-Related Assessments

405-30-05-5
Entities are subject to a variety of other insurance-related assessments. Many states and a number of local governmental units have established other funds supported by assessments. The two most prevalent uses for such assessments are as follows:
  1. a
    To fund operating expenses of state insurance regulatory bodies (for example, the state insurance department or workers' compensation board)
  2. b
    To fund second-injury funds, which provide reimbursement to insurance carriers or employers for workers' compensation claims when the cost of a second injury combined with a prior accident or disability is greater than what the second accident alone would have produced. The employer of an injured or handicapped worker is responsible only for the workers' compensation benefit for the most recent injury; the second-injury fund would cover the cost of any additional benefits for aggravation of a prior condition or injury. The intent of the fund is to help insure that employers are not made to suffer a greater monetary loss or increased insurance costs because of hiring previously injured or handicapped employees.
405-30-05-6
The primary methods used to assess for these other insurance-related assessments are the following:
  1. a
    Premium-based. The assessing entity imposes the assessment based on the entity's written premiums. The assessing entity may be at the state, county, municipality, or other such level. The base year of premiums is generally either the current year or the year preceding the assessment.
  2. b
    Loss-based. The assessing entity imposes the assessment based on the entity's incurred losses or paid losses in relation to that amount for all entities subject to that assessment in the particular jurisdiction.

405-30-10Objectives

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405-30-10-1
The objective of this Subtopic is to establish consistent accounting and disclosures for guaranty-fund and other insurance-related assessments to improve comparability of reported information.

405-30-15Scope and Scope Exceptions

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Entities

405-30-15-1
The guidance in this Subtopic applies to all entities that are subject to guaranty-fund and other insurance-related assessments, including entities that are subject to insurance-related assessments because they self-insure against loss or liability. For example, one state specifies that self-insurers of workers' compensation should use as a base for assessment the amount of premium the self-insurer would have paid if it had insured its liability with an insurer for the previous calendar year.

Transactions

405-30-15-2
The guidance in this Subtopic applies to assessments mandated by statute or regulatory authority that are related directly or indirectly to underwriting activities (including self-insurance), except for income taxes and premium taxes.
405-30-15-3
The guidance in this Subtopic does not apply to the following transactions and activities:
  1. a
    Amounts payable or paid as a result of reinsurance contracts or arrangements that are in substance reinsurance, including assumed reinsurance activities and certain involuntary pools that are covered by Topic 944.
  2. b
    Assessments of depository institutions related to bank insurance and similar funds.
  3. c
    The annual fee imposed on health insurers by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (the Acts). The accounting for the Acts' fee is addressed in Subtopic 720-50.

405-30-25Recognition

Source downloaded: .Record version 35a21475052a. Effective date must be checked in the source.

Reporting Liabilities

405-30-25-1
Entities subject to assessments shall recognize liabilities for insurance-related assessments when all of the following conditions are met:
  1. a
    Probability of assessment. An assessment has been imposed or information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates it is probable that an assessment will be imposed.
  2. b
    Obligating event. The event obligating an entity to pay (underlying cause of) an imposed or probable assessment has occurred on or before the date of the financial statements.
  3. c
    Ability to reasonably estimate. The amount of the assessment can be reasonably estimated.
See Examples 1 through 3 (paragraphs
405-30-55-1 through 55-15
) for illustrations of the computation of assessment liabilities.
405-30-25-2
Premium-based guaranty-fund assessments, except those that are prefunded, are presumed probable when a formal determination of insolvency occurs, and presumed not probable before a formal determination of insolvency. For purposes of this Subtopic, a formal determination of insolvency occurs when an entity meets a state's (ordinarily the state of domicile of the insolvent insurer) statutory definition of an insolvent insurer. In most states, the entity must be declared to be financially insolvent by a court of competent jurisdiction. In some states, there must also be a final order of liquidation.
405-30-25-3
Prefunded guaranty-fund assessments and premium-based administrative-type assessments, as defined in paragraph 405-30-05-3, are presumed probable when the premiums on which the assessments are expected to be based are written. Loss-based administrative-type and second-injury fund assessments are presumed probable when the losses on which the assessments are expected to be based are incurred.
405-30-25-4
Because of the fundamental differences in how assessment mechanisms operate, the event that makes an assessment probable (for example, an insolvency) may not be the event that obligates an entity. The following defines the event that obligates an entity to pay an assessment for each kind of assessment identified in this Subtopic:
  1. a
    For premium-based assessments, the event that obligates the entity is generally writing the premiums or becoming obligated to write or renew (such as multiple-year, noncancelable policies) the premiums on which the assessments are expected to be based. Some states, through law or regulatory practice, provide that an insurance entity cannot avoid paying a particular assessment even if that insurance entity reduces its premium writing in the future. In such circumstances, the event that obligates the entity is a formal determination of insolvency or similar triggering event. For example, in certain states, an insurance entity may remain liable for assessments even though the insurance entity discontinues the writing of premiums. In this circumstance, the underlying cause of the liability is not the writing of the premium, but the insolvency. Regulatory practice would be determined based on the stated intentions or prior history of the insurance regulators.
  2. b
    For loss-based assessments, the event that obligates an entity is an entity's incurring the losses on which the assessments are expected to be based.
405-30-25-5
One of the conditions (see paragraph 450-20-25-2(b)) for recognition of a liability is that the amount can be reasonably estimated. Paragraph 450-20-25-5 provides that some amount of loss can be reasonably estimated when available information indicates that the estimated amount of the loss is within a range of amounts. Paragraph 450-20-30-1 explains that, if no amount within the range is a better estimate than any other amount, the minimum amount in the range should be accrued.

Applying the Recognition Criteria

405-30-25-6
Application of the recognition criteria in paragraphs
405-30-25-1 through 25-5
to the methods used to address guaranty-fund assessments and other insurance-related assessments, as described in paragraphs
405-30-05-3 through 05-6
, is as follows:
  1. a
    Retrospective-premium-based guaranty-fund assessments. An assessment is probable of being imposed when a formal determination of insolvency occurs. At that time, the premium that obligates the entity for the assessment liability has already been written. Accordingly, an entity that has the ability to reasonably estimate the amount of the assessment shall recognize a liability for the entire amount of future assessments related to a particular insolvency when a formal determination of insolvency is rendered.
  2. b
    Prospective-premium-based guaranty-fund assessments. The event that obligates the entity for the assessment liability generally is the writing of, or becoming obligated to write or renew, the premiums on which the expected future assessments are to be based (for example, multiple-year contracts under which an insurance entity has no discretion to avoid writing future premiums). Therefore, the event that obligates the entity generally will not have occurred at the time of the insolvency. Law or regulatory practice affects the event that obligates the entity in either of the following ways:
    1. 1
      In states that, through law or regulatory practice, provide that an entity cannot avoid paying a particular assessment in the future (even if the entity reduces premium writings in the future), the event that obligates the entity is a formal determination of insolvency or a similar event. An entity that has the ability to reasonably estimate the amount of the assessment shall recognize a liability for the entire amount of future assessments that cannot be avoided related to a particular insolvency when a formal determination of insolvency occurs.
    2. 2
      In states without such a law or regulatory practice, the event that obligates the entity is the writing of, or becoming obligated to write, the premiums on which the expected future assessments are to be based. An entity that has the ability to reasonably estimate the amount of the assessments shall recognize a liability when the related premiums are written or when the entity becomes obligated to write the premiums.
  3. c
    Prefunded-premium-based guaranty-fund assessments. A liability for an assessment arises when premiums are written. Accordingly, an entity that has the ability to reasonably estimate the amount of the assessment shall recognize a liability as the related premiums are written.
  4. d
    Other premium-based assessments. Other premium-based assessments, as described in paragraph 405-30-05-5, would be accounted for in the same manner as prefunded-premium-based guaranty-fund assessments.
  5. e
    Loss-based assessments. An assessment is probable of being asserted when the loss occurs. The obligating event of the assessment also has occurred when the loss occurs. Accordingly, an entity that has the ability to reasonably estimate the amount of the assessment shall recognize a liability as the related loss is incurred.
405-30-25-7
Administrative-type assessments are generally expensed in the period assessed.

Asset for Premium Tax Offsets and Policy Surcharges

405-30-25-8
When it is probable that a paid or accrued assessment will result in an amount that is recoverable from premium tax offsets or policy surcharges, an asset shall be recognized for that recovery.
405-30-25-9
For retrospective-premium-based assessments, to the extent that it is probable that paid or accrued assessments will result in a recoverable amount in a future period from business currently in force considering appropriate persistency rates for long-duration contracts (see paragraph 405-30-30-11), an asset shall be recognized at the time the liability is recorded.
405-30-25-10
An asset shall not be established for paid or accrued assessments that are recoverable through future premium rate structures.
405-30-25-11
Policy surcharges that are required as a pass-through to the state or other regulatory bodies shall be accounted for in a manner such that amounts collected or receivable are not recorded as revenues and amounts due or paid are not expensed (meaning, similar to accounting for sales tax).

405-30-30Initial Measurement

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Estimating the Liability

405-30-30-1
Entities subject to assessments may be able to obtain information to assist in estimating the total guaranty-fund cost or the following years' assessments, as appropriate, for an insolvency from entities such as the state guaranty fund associations, the National Organization of Life and Health Insurance Guaranty Associations, and the National Conference of Insurance Guaranty Funds.
405-30-30-2
An entity need not be able to compute the exact amounts of the assessments or be formally notified of such assessments by a guaranty fund to make a reasonable estimate of its liability. Entities subject to assessments may have to make assumptions about future events, such as when the fund will incur costs and pay claims that will determine the amounts and the timing of assessments.
405-30-30-3
The best available information about market share or premiums by state and premiums by line of business shall be used to estimate the amount of an insurance entity's future assessments.
405-30-30-4
If a noninsurance entity's assessments are based on premiums, it may be necessary to consider the amount of premium the self-insurer would have paid if it had insured its liability with an insurer. If a noninsurance entity's assessments are based on losses, it shall consider the losses that have been incurred by the entity when determining the liability. Most often, assessments that have an impact on noninsurance entities that self-insure workers' compensation obligations are for second-injury funds. Second-injury funds generally assess insurance entities and self-insurers based on paid losses.
405-30-30-5
A noninsurance entity may develop an accrual for its second-injury liability based on any of the following:
  1. a
    The ratio of the entity's prior period paid workers' compensation claims to aggregate workers' compensation claims in the state that was used as a basis for previous assessments
  2. b
    Total fund assessments in prior periods
  3. c
    Known changes in the current period to either the number of employees self-insured by the entity or the number of workers who are the subject of recoveries from the second-injury fund that might alter total fund assessments and the entity's proportion of the total fund assessments.
405-30-30-6
Estimates of loss-based assessments shall be consistent with estimates of the underlying incurred losses and shall be developed based on enacted laws or regulations and expected assessment rates.
405-30-30-7
Estimates of some insurance-related assessment liabilities may be difficult to derive. The development or determination of estimates is particularly difficult for guaranty-fund assessments because of uncertainties about the cost of the insolvency to the guaranty fund and the portion that will be recovered through assessment. Examples of uncertainties include the following:
  1. a
    Limitations, as provided by statute, on the amount of individual contract liabilities that the guaranty fund will assume, that cause the guaranty fund associations' liability to be less than the amount by which the entity is insolvent
  2. b
    Contract provisions (for example, credited rates) that may be modified at the time of the insolvency or alternative payout options that may be offered to contract holders that affect the level and payout of the guaranty fund's liability
  3. c
    The extent and timing of available reinsurance recoveries, which may be subject to significant uncertainties
  4. d
    Alternative strategies for the liquidation of assets of the insolvent entity that affect the timing and level of assessments
  5. e
    Certain liabilities of the insolvent insurer that may be particularly difficult to estimate (for example, asbestos or environmental liabilities).
405-30-30-8
Because of the uncertainties surrounding some insurance-related assessments, the range of assessment liability may have to be reevaluated regularly during the assessment process. For some ranges, there may be amounts that appear to be better estimates than any other within the range. If this is the case, the liability recorded shall be based on the best estimate within the range. For ranges in which there is no such best estimate, the liability that should be recorded shall be based on the amount representing the minimum amount in the range.

Present Value Measurement of the Obligation

405-30-30-9
Current practice in the insurance industry is to allow, but not require (with limited exceptions, such as pensions and postretirement benefits), the discounting of liabilities to reflect the time value of money when the aggregate amount of the obligation and the amount and timing of the cash payments are fixed or reliably determinable for a particular liability.
405-30-30-10
Similarly, for assessments that meet those criteria, the liability may be recorded at its present value by discounting the estimated future cash flows at an appropriate interest rate.

Asset for Premium Tax Offsets and Policy Surcharges

405-30-30-11
The asset recognized under paragraph 405-30-25-8 shall be measured based on current laws and projections of future premium collections or policy surcharges from in-force policies. In determining the asset to be recorded, in-force policies do not include expected renewals of short-duration contracts but do include assumptions as to persistency rates for long-duration contracts.
405-30-30-12
The time value of money need not be considered in the determination of the recorded amount of a potential recovery if the liability is not discounted. In instances in which the recovery period for an asset is substantially longer than the payout period for the liability, it may be appropriate to record the asset on a discounted basis regardless of whether the liability is discounted.
405-30-30-13
The recognition of such assets related to prospective-premium-based assessments is limited to the amount of premium an entity has written or is obligated to write and to the amounts recoverable over the life of the in-force policies. The expected premium tax offset or policy surcharge asset related to the accrual of prospective-premium-based assessments shall be based on and limited to the amount recoverable as a result of premiums the insurer has written or is obligated to write.

405-30-35Subsequent Measurement

Source downloaded: .Record version 19656d9ed34b. Effective date must be checked in the source.

Asset for Premium Tax Offsets and Policy Surcharges

405-30-35-1
The asset recorded under paragraph 405-30-25-8 for premium tax offsets and policy surcharges shall be subject to a valuation allowance to reflect any portion of the asset that is no longer probable of realization. Considering expected future premiums other than on in-force policies in evaluating the recoverability of premium tax offsets or policy surcharges is not appropriate.

405-30-50Disclosure

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405-30-50-1
Sections 275-10-50 and 450-20-55 address disclosures related to loss contingencies. That guidance is applicable to assessments covered by this Subtopic. Additionally, if amounts have been discounted, the entity shall disclose in the financial statements the undiscounted amounts of the liability and any related asset for premium tax offsets or policy surcharges as well as the discount rate used. If amounts have not been discounted, the entity shall disclose in the financial statements the amounts of the liability, any related asset for premium tax offsets or policy surcharges, the periods over which the assessments are expected to be paid, and the period over which the recorded premium tax offsets or policy surcharges are expected to be realized.

405-30-55Implementation Guidance and Illustrations

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Illustrations

405-30-55-1
This Example illustrates application of the recognition and measurement guidance in this Subtopic to a prospective-premium-based assessment. This kind of assessment is considered prospective because the assessment relates to premium written after the insolvency. As a result of insolvencies in prior years, ABC Property & Liability Insurance Company (ABC) expects to be assessed in the future by the guaranty fund in a state where it writes premiums. Any such assessments will be limited to 2 percent of premium writings in the prior year and are recoverable through premium tax offsets on a ratable basis over the 5-year period following the year of each assessment.
405-30-55-2
Although it does not expect to do so, ABC is free to cease writing the lines of business that are subject to the guaranty-fund assessments.
405-30-55-3
As of December 31, 19X0, ABC has neither paid nor received a notice of an assessment related to the insolvencies. Based on communications from the state guaranty association, ABC expects to receive an assessment in 19X1, which is allocated among entities based on 19X0 market share, for at least 1 percent of 19X0 premiums that are subject to the assessment. A best estimate cannot be determined, and no amount within the range of estimates (meaning, from 1 to 2 percent of 19X0 premiums) is a better estimate than any other amount, therefore the minimum amount in the range shall be accrued.
405-30-55-4
As of December 31, 19X0, ABC should recognize a liability equal to 1 percent of the premiums written in 19X0 that are subject to the assessment. No additional liability should be recognized, and no asset related to the premium tax offset should be recognized. Disclosure of the loss contingency of up to an additional 1 percent of the subject premiums should be considered.
405-30-55-5
ABC would recognize a liability only for those future assessments it is obligated to pay as a result of the premiums written. Because ABC is not obligated to write any future premiums, its liability is limited to that related to premiums written in 19X0. Because no amount within the range of estimates is a better estimate than any other amount, the minimum amount in the range is accrued. Further, because the premium tax offset is realizable only on business that will be written in the future (that is, 19X2 and subsequent years), no asset or receivable is recognized as of December 31, 19X0.
405-30-55-6
This Example illustrates application of the recognition and measurement guidance in this Subtopic to a retrospective-premium-based assessment. As a result of an insolvency that occurred during 19X0, DEF Life and Health Insurance Company (DEF) expects to be assessed in the future by the guaranty fund in a state where it has written business. Any such assessment will be based on DEF's average market share, determined based on premiums that are subject to the assessment for the three years before the insolvency, and limited to 2 percent of the average annual subject premiums for the three years before the insolvency. Further, such assessments are recoverable through premium tax offsets over the five-year period following the year of payment for each assessment.
405-30-55-7
As of December 31, 19X0, DEF has not paid or received a notice of an assessment related to the insolvency. Based on initial input from the National Organization of Life and Health Insurance Guaranty Associations and experience with other insolvencies, DEF assumes that the first assessment will not be made until 19X3 and that it will take three to five annual assessments for the guaranty fund to be able to meet its obligations. Based on the estimated nationwide cost of the insolvency and the distribution of the insolvent entity's business, DEF estimates that its assessment will be at least 1 percent of the average annual premiums that are subject to the assessment. No amount within the range of estimates (meaning, from 1 to 2 percent of the average annual premiums for 3 to 5 years) is a better estimate than any other amount, therefore the minimum amount in the range shall be accrued.
405-30-55-8
As of December 31, 19X0, DEF should recognize a liability for 3 years of assessments at 1 percent of the average annual premiums that are subject to the assessment (that is, the assessments expected in 19X3, 19X4, and 19X5). Disclosure of the loss contingency for additional assessments (meaning, in 19X6 and 19X7) or assessment of greater than 1 percent of the average annual premiums that are subject to the assessment should be considered. An asset related to premium tax offsets that are available on accrued assessments would be recorded provided there were sufficient premium taxes based on business in force at December 31, 19X0 (with assumed levels of policy retention), to allow realization of the asset.
405-30-55-9
The resulting recognized liability and asset are as follows (shown on both a discounted and undiscounted basis, based on paragraphs
405-30-30-9 through 30-12
, discounting is optional), assuming average annual subject premiums of $100,000 for the 3 years before the insolvency.
  • Recorded at Cash Payments Assessments 12/31/19X0 19X1 19X2 19X3 19X4 19X5 19X6 19X7 19X8 19X9 20X0 19X3 Assessment " 1,000 " 19X4 Assessment " 1,000 " 19X5 Assessment " 1,000 " Total " 3,000 " " 1,000 " " 1,000 " " 1,000 " Premium tax offset 19X3 Assessment (a) 200 200 200 200 200 19X4 Assessment (a) 200 200 200 200 200 19X5 Assessment (a) 200 200 200 200 200 Total " 3,000 " 200 400 600 600 600 400 200 Present value of assessments At 12/31/19X0 (b) " 2,470 " Present value of premium Tax offset at 12/31/19X0 (b) " 2,139 " "(a) Assumed that, based upon anticipated levels of policy retention from the business in force at December 31, 19X0, there will be sufficient premium to realize the premium tax offset." "(b) Discounted at 5 percent, assuming all assessments are paid and offsets realized at the end of each year."
405-30-55-10
DEF would record a liability for all future assessments related to the insolvency. Because no amount within the range of estimates (meaning, from 1 to 2 percent of the average annual premiums for 3 to 5 years) is a better estimate than any other amount, the minimum amount in the range (meaning, 1 percent per year for 3 years of assessments) is accrued.
405-30-55-11
Since it is assumed that based on the anticipated levels of policy retention from the business in force at December 31, 19X0, there will be sufficient premium to realize the premium tax offset, the premium tax offset is recorded.
405-30-55-12
This Example illustrates application of the recognition and measurement guidance in this Subtopic to a loss-based assessment. GHI Industrial Company (GHI) is self-insured for workers' compensation and therefore participates in the second injury fund in the state where it conducts operations. GHI is entitled to recover from the fund some or all of the indemnity claims for previously injured workers. GHI is also subject to annual assessments (maximum of 1 percent per year) on indemnity claims paid each year.
405-30-55-13
Assessment rates have been climbing steadily, from 0.6 percent 5 years previous to 0.75 percent in 19X0.
405-30-55-14
As of December 31, 19X0, GHI should have an assessment liability recognized for 0.75 percent of its liability for the payment of future indemnity claims, unless there was information to support the assessment rate being reduced or the assessments being eliminated in the future. Disclosure of the loss contingency of up to an additional 0.25 percent of the liability for the payment of future indemnity claims should be considered.
405-30-55-15
GHI would recognize a liability based on the current assessment rate, unless there was clear evidence that the rate would change. The liability would be based on the entire liability base that was subject to the assessment.

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