ASC

ASC 720-20

Insurance Costs

720 Other Expenses

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In brief

IntermediateRecognitionSubsequent measurementPresentationContingencies and guarantees

ASC 720-20 tells a policyholder (a noninsurance entity, or an insurer buying coverage outside its core operations) how to account for insurance it purchases, covering three contract types: retroactive contracts, claims-made contracts, and multiple-year retrospectively rated contracts. If a contract does not actually transfer insurance risk, the premium (less amounts retained by the insurer) is accounted for as a deposit under Subtopic 340-30 (720-20-25-1). For retroactive coverage of already-incurred liabilities, the premium is expensed immediately, a receivable is recorded for expected recoveries, and any excess of receivable over premium is a deferred gain amortized over the recovery period (720-20-25-3 through 25-4; 720-20-35-2).

Key points (7)
  • If, regardless of form, an insurance contract does not indemnify the insured against loss or liability, the premium paid less the amount retained by the insurer is accounted for as a deposit under Subtopic 340-30 (720-20-25-1; 720-20-25-2).
  • Purchased retroactive insurance is accounted for like retroactive reinsurance under Subtopic 944-605: the premium is expensed immediately and a receivable is established for expected recoveries related to the insured event (720-20-25-3).
  • Any excess of the receivable over the amount paid is a deferred gain—immediate gain recognition and derecognition of the liability are prohibited because the liability is not extinguished and offsetting is not permitted under 210-20-45-1 (720-20-25-4); the deferred gain is amortized using the interest method, or on a recoveries-to-total-recoveries basis if amounts and timing cannot be reasonably estimated (720-20-35-2).
  • A claims-made policy that covers specific known claims reportable before the policy period (asserted claims, known unasserted claims, or known events that might result in a claim) contains a retroactive provision; the retroactive and prospective provisions must be accounted for separately if practicable, and if not practicable the entire policy is accounted for as retroactive (720-20-25-6 through 25-8), with indicators of a purely prospective policy listed in 720-20-25-10.
  • Prospective claims-made policies are accounted for by recognizing the premium as prepaid expense and estimating an annual expense equal to premium plus the change in the incurred-but-not-reported liability and the change in the related insurance recoverable, allocated to interim periods, with unusual claims recognized discretely when incurred (720-20-35-3 through 35-5; 720-20-35-9 through 35-10).
  • Insured entities must still accrue a liability for probable and reasonably estimable incurred but not reported claims under 450-20-25-2 (720-20-25-14), and prepaid insurance and insurance receivables may not be offset against those liabilities unless 210-20-45-1 is met (720-20-45-1).
  • For a multiple-year retrospectively rated contract accounted for as insurance, the insured recognizes a liability (or asset) for consideration payable to (or by) the insurer that would not exist absent experience under the contract, measured using a with-and-without method excluding future experience (720-20-25-15; 720-20-30-3; termination alternatives in 720-20-30-4).

For students. This is the policyholder's side of insurance accounting—easy to confuse with Topic 944, which governs insurers. The classic trap is assuming that buying insurance for an already-recognized liability lets you write off the liability and book a gain; instead you expense the premium, record a receivable, defer any gain, and keep the gross liability on the balance sheet.

retroactive insurance contractclaims-made policydeferred gain amortizationdeposit accountingincurred but not reported liabilityinsurance recoverablemultiple-year retrospectively rated contractwith-and-without method

Machine-generated study aid for ASC 720-20. Check the source paragraphs below.

720-20-00Status

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720-20-00-1
The following table identifies the changes made to this Subtopic.
Paragraph Action Accounting Standards Update Date
Reinsurance Added Accounting Standards Update No. 2016-19 12/14/2016
720-20-05-3 Amended Accounting Standards Update No. 2016-19 12/14/2016
720-20-05-5 Amended Maintenance Update 2020-18 (PDF) 11/25/2020
720-20-15-6 Amended Accounting Standards Update No. 2016-19 12/14/2016
720-20-15-8 Amended Accounting Standards Update No. 2016-19 12/14/2016
720-20-25-1 Amended Accounting Standards Update No. 2016-19 12/14/2016
720-20-30-2 Amended Maintenance Update 2020-18 (PDF) 11/25/2020

720-20-05Overview and Background

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720-20-05-1
This Subtopic provides guidance on three types of insurance contracts. The guidance for each is presented in the following Subsections:
  1. a
    Retroactive contracts
  2. b
    Claims-made contracts
  3. c
    Multiple-year retrospectively rated contracts.
720-20-05-2
In addition, guidance on deposit accounting resulting from contracts that do not transfer insurance risk is contained in the General Subsections of this Subtopic and in Subtopic 340-30. Operations in certain industries may be subject to such high risks that insurance is unavailable or is available only at what is considered to be a prohibitively high cost. Some entities in those industries have pooled their risks by forming mutual insurance entities in which they retain an equity interest and to which they pay insurance premiums. For example, some electric utility entities have formed such a mutual insurance entity to insure risks related to nuclear power plants, and some oil entities have formed an entity to insure against risks associated with petroleum exploration and production. Whether the premium paid represents a payment for the transfer of risk or whether it represents merely a deposit will depend on the circumstances surrounding each entity's interest in and insurance arrangement with the mutual insurance entity. An analysis of the contract is required to determine whether risk has been transferred and to what extent.

Retroactive Contracts

720-20-05-3
The Retroactive Contracts Subsections provide guidance on how an insured entity, including an insurance entity purchasing insurance unrelated to its core insurance operations (for example, manufacturers, retailers, service entities, and financial institutions), should account for a purchased retroactive insurance policy and whether the transaction results in gain recognition (excluding reinsurance transactions). For example, an entity records a liability of $100 million incurred as a result of a past event in accordance with Subtopic 450-20. The entity then buys an insurance policy for $60 million to cover that liability.

Claims-Made Contracts

720-20-05-4
Many entities use claims-made policies to satisfy their insurance needs for such coverage as product, directors and officers, and malpractice liabilities. However, entities have been purchasing coverage for a variety of other exposures using a claims-made format. Under a claims-made insurance policy, an entity is insured for any claims reported during the term of the policy, in many cases including those that occurred prior to the policy effective date but after the specified retroactive date.
720-20-05-5
Generally, entities purchasing a claims-made policy will renew the policy each year. The amount of coverage purchased may change over time to meet current needs (for example, changing risk within the entity) or to respond to the overall environment (for example, the expected settlement costs of the same claim today may cost more than in prior years). When operations cease, the entity generally purchases tail coverage to insure itself against any previously unasserted claims.
720-20-05-6
Presuming the entity can renew the claims-made policy each year and can obtain tail coverage when desired, such a strategy effectively converts the claims-made policy into an occurrence-based policy covering the entity for any claims made against it.
720-20-05-7
Entities generally use claims-made coverage because it is the only form of insurance available for certain exposures, particularly exposures for which the occurrence dates may be difficult to determine or for which the occurrence may span a long period of time. Therefore, a claims-made policy mitigates potential coverage disputes because the occurrence date generally is not relevant to the determination of coverage.
720-20-05-8
Also, there may be reduced insurance costs in the first several years of a claims-made policy as compared to an occurrence-based policy. Many entities that purchase claims-made insurance policies have no knowledge of unasserted outstanding claims or, because their liabilities have not met the recognition criteria contained in paragraph 450-20-25-2 or in other applicable U.S. generally accepted accounting principles (GAAP), have no recognized liability for claims, including incurred but not reported claims. In other situations, however, entities that purchase claims-made insurance policies are aware of potential claims based on a specific incident or incidents or historical experience. In those situations, unasserted claims can be either specifically excluded from or specifically included in the coverage.

Multiple-Year Retrospectively Rated Contracts

720-20-05-9
An entity (for example, a manufacturer, a retailer, a service entity, or a financial entity) may enter into a multiple-year retrospectively rated contract with an insurance entity. These contracts may cover various types of exposures such as product and environmental liability risks. A critical feature of these contracts is that part or all of the retrospective rating provision is obligatory such that the retrospective rating provision creates for each party to the contract future rights and obligations as a result of past events.
720-20-05-10
Such contracts include a retrospective rating provision that provides for any of the following based on contract experience:
  1. a
    Changes in the amount or timing of future contractual cash flows, including premium adjustments, settlement adjustments, or refunds to the noninsurance entity
  2. b
    Changes in the contract's future coverage.

720-20-15Scope and Scope Exceptions

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Overall Guidance

720-20-15-1
The General Subsection of this Section establishes the pervasive scope for this Subtopic, with specific exceptions noted in the other Subsections of this Section.

Entities

720-20-15-2
The guidance in this Subtopic applies to all entities.

Retroactive Contracts

Overall Guidance

720-20-15-3
The Retroactive Contracts Subsections follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Subtopic, see paragraph 720-20-15-1, with specific entity and transaction qualifications noted below.

Entities

720-20-15-4
The guidance in the Retroactive Contracts Subsections applies to all entities that enter into retroactive insurance contracts.

Transactions

720-20-15-5
The guidance in the Retroactive Contracts Subsections applies to the following transactions and activities:
  1. a
    Those that meet the indemnification against loss or liability conditions of Section 720-20-25-1
  2. b
    Those that provide indemnification against loss or liability relating to liabilities that have been incurred as a result of a past event, for example, environmental remediation liabilities (see Subtopic 410-30).
720-20-15-6
The guidance in the Retroactive Contracts Subsections does not apply to the following transactions and activities:
  1. a
    Those that legally extinguish the entity's liability
  2. b
    Reinsurance transactions (see Subtopic 944-20 for guidance on the accounting by insurance entities for reinsurance contracts).

Claims-Made Contracts

Overall Guidance

720-20-15-7
The Claims-Made Contracts Subsections follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Subtopic, see paragraph 720-20-15-1, with specific transaction exceptions noted below.

Transactions

720-20-15-8
The guidance in the Claims-Made Contracts Subsections does not apply to reinsurance transactions (see the Reinsurance Subsections of Topic 944 for guidance on the accounting by insurance entities for reinsurance contracts).

Multiple-Year Retrospectively Rated Contracts

Overall Guidance

720-20-15-9
The Multiple-Year Retrospectively Rated Contracts Subsections follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Subtopic, see paragraph 720-20-15-1, with specific transaction exceptions noted below.

Transactions

720-20-15-10
The guidance in the Multiple-Year Retrospectively Rated Contracts Subsections does not apply to the following transactions and activities:
  1. a
    A retrospectively rated insurance contract that is not a multiple-year contract or that could be cancelled by either party without further obligation.

720-20-25Recognition

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720-20-25-1
To the extent that an insurance contract or reinsurance contract does not, despite its form, provide for indemnification of the insured or the ceding entity by the insurer or reinsurer against loss or liability, the premium paid less the amount of the premium to be retained by the insurer or reinsurer shall be accounted for as a deposit by the insured or the ceding entity. Those contracts may be structured in various ways, but if, regardless of form, their substance is that all or part of the premium paid by the insured or the ceding entity is a deposit, it shall be accounted for as such.
720-20-25-2
See Subtopic 340-30 for guidance on deposit accounting. In addition, the preceding paragraph requires that an entity determine whether insurance risk has been transferred through an insurance contract; entities may find the conditions in Section 944-20-15 useful in assessing whether an insurance contract transfers risk.

Retroactive Contracts

Purchase of a Retroactive Insurance Policy

720-20-25-3
Notwithstanding that Topic 944 applies only to insurance entities, purchased retroactive insurance contracts that indemnify the insured shall be accounted for in a manner similar to the manner in which retroactive reinsurance contracts are accounted for under Subtopic 944-605. The guidance in that Subtopic shall be applied, as appropriate, based on the facts and circumstances of the particular transaction. That is, amounts paid for retroactive insurance shall be expensed immediately. Simultaneously, a receivable shall be established for the expected recoveries related to the underlying insured event.
720-20-25-4
If the receivable established exceeds the amounts paid for the insurance, the resulting gain is deferred. Immediate gain recognition and liability derecognition are not appropriate because the liability has not been extinguished (the entity is not entirely relieved of its obligation). Additionally, the liability incurred as a result of a past insurable event and amounts receivable under the insurance contract do not meet the criteria for offsetting under paragraph 210-20-45-1.
720-20-25-5
If the purchased insurance contract includes coverage for legal and other costs, the accounting for those costs shall be consistent between the asset and the liability. That is, if the entity's accounting policy is to accrue legal and other costs, then the insurance receivable shall reflect those costs if they are covered under the terms of the insurance policy. If an entity's accounting policy is not to accrue for those costs, then the insurance receivable shall not reflect those costs on an accrual basis.

Claims-Made Contracts

Claims-Made Insurance Policies That Represent Purchased Retroactive Insurance Contracts

720-20-25-6
A claims-made insurance policy contains a retroactive provision if it provides coverage for specific known claims that were reportable prior to the policy period. Regardless of whether the insured has recognized a loss contingency for those claims, specific known claims that were reportable (by the insured entity to the insurance entity) would encompass:
  1. a
    Asserted claims
  2. b
    Known unasserted claims
  3. c
    Any known previous event or circumstance that might result in a specific claim (whether asserted or unasserted).
Such claims include those that were not reported by the insured to the insurance entity, but would have been reportable to the insurance entity had a claims-made policy been in place in a prior period.
720-20-25-7
If a claims-made insurance policy contains a retroactive provision, the retroactive and prospective provisions of the policy shall be accounted for separately, if practicable.
720-20-25-8
If it is not practicable to separate the retroactive and prospective provisions, the claims-made insurance policy shall be accounted for entirely as a retroactive contract in accordance with Subtopic 944-605. A claims-made insurance policy that contains no retroactive provisions should be accounted for on a prospective basis as described in the Claims-Made Contracts Subsection of Section 720-20-35 and in Examples 4-5 (see paragraphs
720-20-55-13 through 55-20
).
720-20-25-9
Paragraph 944-20-15-34B states that in claims-made insurance, the insured event is the reporting to the insurer, within the period specified by the policy, of a claim for a loss covered by the insurance contract. Accordingly, a prospective claims-made insurance policy only covers claims for losses reportable to the insurer during the policy term. A retroactive provision provides coverage for known claims, for which the underlying event had occurred and the incident would have been reportable prior to the effective date of the claims-made policy. A recognized liability for incurred but not reported claims generally would not be determinative in concluding that a claims-made insurance policy either does or does not contain a retroactive provision.
720-20-25-10
All relevant facts and circumstances should be considered in evaluating whether a claims-made policy contains a retroactive provision. The following are indicators that a claims-made insurance policy does not contain a retroactive provision (that is, it does not provide coverage for previously reportable claims) and, therefore, shall be accounted for on a prospective basis. No one indicator is determinative in this evaluation; the determination must be made upon the specific facts and circumstances:
  1. a
    The insured consistently purchases claims-made insurance policies as part of its risk management program for the specific type of risk being insured, and tail coverage for both prior periods and prior policies is readily available and not excessively priced as compared to tail coverage offered to similar entities that do not contain retroactive provisions.
  2. b
    The claims-made insurance policy is responsive to unknown risks for a finite or limited period of time, as evidenced by the fact that all of the following conditions exist:
    1. 1
      The type of risk being insured is inherently short-tailed (that is, the claims are incurred during the policy period and paid out in their entirety shortly after the end of the policy period).
    2. 2
      The policy term is for a limited period of time (for example, one-year coverage).
    3. 3
      Claims-made coverage is the most readily available coverage for this type of insurance risk.
    4. 4
      The occurrence date of the type of risk covered by the policy is unclear (that is, the causal event that gives rise to an insured claim is difficult to determine). Such a lack of identification creates difficulty in assessing risk for an entity considering whether to self-insure its insurance risk (for example, a manufacturing entity may be completely unaware of the potential health hazards attributable to its core products and may want to protect itself in case a by-product of its production process becomes the next asbestos).
  3. c
    The claims-made insurance policy contains an unambiguous trigger indicating that a claim is covered by the policy. That contract trigger should not be subject to interpretation, negotiation, or manipulation. An example of an unambiguous trigger that indicates that a claim is covered by a claims-made insurance policy would include both of the following provisions:
    1. 1
      The insured notifies the insurance carrier during the policy term that a claim has been asserted or that an incident has occurred.
    2. 2
      The insured must represent that it was not aware of any such incident when the claims-made policy was purchased.
  4. d
    The premium charged for the claims-made insurance policy is not significantly in excess of the premium that would be charged for a claims-made insurance policy that could be purchased by a similar entity with similar insurance risks and no knowledge of any circumstances or events that would result in any claims, excluding any anticipated amounts for a typical number of claims for which the insured is not aware to have specifically occurred but that it expects would be reported (incurred but not reported).
  5. e
    The insurer may base the premium for the claims-made insurance policy on estimates and predictions that are based on the past experience of the insured but the premium is not based on settlement estimates of specific, known events that are expected to be recovered under the policy.
  6. f
    The premium charged for the policy in the current year is not significantly in excess of that charged in previous years, other than for increases in the amount or type of coverage. An anticipated increase in premiums that is expected to occur because the insured entity is advancing toward the mature stage of premiums for claims-made insurance would not be considered in making that determination.
  7. g
    The claims-made insurance policy is primarily intended to cover insurance risk and is not a financing arrangement. Claims-made insurance policies that are intended to cover insurance risk typically include features such as:
    1. 1
      An absence of adjustment features based on experience
    2. 2
      Coverage of the ultimate loss from the claim, once made, regardless of period of settlement.
  8. h
    If the claims-made insurance policy has a specified retroactive date prior to the inception of the claims-made relationship with the insurer, the period from that specified retroactive date to the inception of the claims-made relationship with that insurer is either short or covered by other insurance policies.
720-20-25-11
Although the guidance in the Retroactive Contracts Subsection of this Section (see paragraph 720-20-25-3) applies to situations in which the insured entity uses a claims-made insurance policy to finance known losses (that is, when the insurance contract was purchased in order to provide insurance coverage for specific, known events that occurred or were reportable before the inception of the contract), the guidance in that paragraph does not preclude prospective accounting for those claims-made insurance policies or portions of those policies that contain only prospective provisions.
720-20-25-12
An insured entity may, for various reasons, contemporaneously enter into multiple claims-made insurance policy contracts. In those circumstances, an entity should consider whether those insurance contracts should be combined in order to determine the appropriate accounting treatment. The guidance contained in Section 944-20-15 is helpful in those instances.
720-20-25-13
See Examples 1-3 (paragraphs
720-20-55-2 through 55-12
) for illustrations of the application of the recognition guidance for claims-made contracts.

Recognizing a Liability for Incurred but Not Reported Claims

720-20-25-14
Paragraph 450-20-25-2 requires that insured entities (except as discussed in Section 944-20-15), including those that use a claims-made approach for insuring certain risks, recognize a liability for the probable losses from incurred but not reported claims and incidents if the loss is both probable and reasonably estimable. Paragraphs
450-20-55-10 through 55-17
provide implementation guidance about litigation, claims, and assessments.

Multiple-Year Retrospectively Rated Contracts

720-20-25-15
For a multiple-year retrospectively rated insurance contract accounted for as insurance, the insured shall recognize either of the following:
  1. a
    As indicated in paragraph 944-20-25-2, a liability to the extent that the insured has an obligation to pay cash (or other consideration) to the insurer that would not have been required absent experience under the contract
  2. b
    As indicated in paragraph 944-20-25-2, an asset to the extent that any cash (or other consideration) would be payable by the insurer to the insured based on experience to date under the contract.

720-20-30Initial Measurement

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720-20-30-1
See Subtopic 340-30 and Section 720-20-25 for measurement guidance on deposit accounting for payments to insurance entities that may not involve transfer of risk.

Claims-Made Contracts

Liability for Incurred but Not Reported Claims Based on the Cost of Tail Coverage

720-20-30-2
The estimated cost of purchasing tail coverage is not relevant in determining the loss to be accrued because paragraph 210-20-45-1 prohibits netting the insurance receivable against the claim liability. However, if the insured entity had the unilateral option to purchase tail coverage at a premium not to exceed a specified fixed maximum, then the insured entity could record a receivable for expected insurance recoveries (after considering deductibles and policy limits) for the portion of the incurred but not reported liability that is insurable under the tail coverage. In that case, the entity would need to record as a cost the expected premium for the tail coverage. The purchase of tail coverage does not eliminate the need to determine if an additional liability should be accrued because of policy limits or other factors.

Multiple-Year Retrospectively Rated Contracts

720-20-30-3
For a multiple-year retrospectively rated insurance contract accounted for as insurance, the amount recognized in the current period shall be computed using a with-and-without method, as the difference between the insured's total contract costs before and after the experience under the contract as of the reporting date, including costs such as premium adjustments, settlement adjustments, and impairments of coverage. The amount of premium expense related to impairments of coverage shall be measured in relation to the original contract terms. Future experience under the contract (that is, future losses and future premiums that would be paid regardless of past experience) shall not be considered in measuring the amount to be recognized.
720-20-30-4
If the insured could terminate the contract before the end of its term and if termination would change the amounts paid (for example, if terminating the contract would cost less than continuing the contract in force), the liability resulting from the contract shall be measured as follows:
  1. a
    If a decision to terminate has been made, the measurement shall be based on an assumption of termination and on experience to date.
  2. b
    Otherwise, the measurement shall be based on the lesser of the following:
    1. 1
      The total incremental amount that would be paid based on the with-and-without calculation assuming experience to date and assuming termination (that is, excluding the effects of future losses and future premiums that would have been paid regardless of experience to date)
    2. 2
      The total incremental amount that would be paid based on the with-and-without calculation assuming experience to date and assuming no termination (that is, excluding the effects of future losses and future premiums that would have been paid regardless of experience to date).

720-20-35Subsequent Measurement

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720-20-35-1
See Subtopic 340-30 for measurement guidance on deposit accounting for payments to insurance entities that may not involve transfer of risk.

Retroactive Contracts

Deferred Gain Amortization

720-20-35-2
If the amounts and timing of the insurance recoveries can be reasonably estimated, the deferred gain shall be amortized using the interest method over the estimated period over which the entity expects to recover substantially all amounts due under the terms of the insurance contract. If the amounts and timing of the insurance recoveries cannot be reasonably estimated, then the proportion of actual recoveries to total estimated recoveries shall be used to determine the amount of the amortization.

Claims-Made Contracts

Interim Financial Reporting—Entity's Fiscal Year and Policy Year Coincide

720-20-35-3
When the entity's fiscal year and policy year coincide, an appropriate method to recognize expense is through a combination of any of the following:
  1. a
    Accruing the incurred but not reported liability
  2. b
    Accruing any expected increase in insurance recoverables
  3. c
    Amortizing the insurance premium on a pro rata basis over the year.
In addition, the liability for any unusual claims or incidents, as well as any applicable insurance recoverable related thereto, would be recognized in the interim period in which they become known.
720-20-35-4
For interim reporting, the approach treats usual recurring losses as integral to annual reporting, and, therefore, any expected changes in the incurred but not reported liability and related insurance recoverables that are not related to specific events can be spread over the entire year. However, material unusual losses shall be accounted for as discrete items and recognized as they occur. The approach discussed in this Subsection assumes the recurring purchase of a claims-made insurance policy with a one-year term and the payment of premiums on the first day of each policy year.
720-20-35-5
When the entity's fiscal year and policy term coincide, the year-end incurred but not reported liability relates to the entity's obligation for claims and incidents that have been incurred prior to year-end but will be reportable after year-end. The approach for accounting by policyholders who purchase claims-made insurance policies that consist of prospective provisions is as follows:
  1. a
    The premium paid at the beginning of the fiscal year for the new claims-made insurance policy shall be recognized as a prepaid expense.
  2. b
    At the beginning of the fiscal year, the entity shall estimate its incurred but not reported liability as of the end of the fiscal year. That estimate involves estimating the claims and incidents that will be incurred prior to year-end but will not be reportable until after year-end. Presumably the estimated year-end incurred but not reported liability would approximate the beginning incurred but not reported liability adjusted for relevant historical patterns unless the entity has identified new factors (such as a major change in products, manufacturing processes, or risk management systems) that warrant further adjustment of the ending incurred but not reported liability.
  3. c
    The entity shall compute an estimated annual expense as the sum of all of the following:
    1. 1
      The premium paid for the claims-made policy
    2. 2
      The difference between the beginning incurred but not reported liability and the estimated year-end incurred but not reported liability
    3. 3
      The difference between the beginning insurance recoverable related to the incurred but not reported liability and the estimated ending amount.
    That estimated annual expense shall be recognized in interim periods based on the methodology that best reflects the manner in which the benefits of the insurance coverage are consumed and the incurred but not reported liability is incurred. In addition, liabilities for specific claims incurred during the year that are not included in the incurred but not reported estimate shall be recognized as expense in the interim period in which they are incurred. The method selected shall be appropriate in light of the relevant facts and circumstances and consistently applied.
  4. d
    The estimated year-end incurred but not reported liability shall be reviewed whenever interim financial statements are prepared. Routine adjustments to the estimated liability shall be recognized ratably in each of the remaining interim periods. However, if events and circumstances in that interim period indicate that unusual claims and incidents have been incurred prior to the end of the interim period, the entity shall recognize in that interim period any related significant adjustments of the estimated year-end incurred but not reported liability.
  5. e
    For any insurance recoverable recognized, either related to the incurred but not reported liability or to a specific incurred claim, the entity shall evaluate those assets and adjust them, if necessary, based on changes in circumstances. See paragraphs
    410-30-35-8 through 35-11
    for further guidance on the recognition of a receivable for expected insurance recoveries.
  6. f
    Any unusual claims and incidents that have been incurred prior to the end of an interim period but will probably be reported prior to year-end should not affect net income if they will be covered (insured) under the existing claims-made insurance policy. However, both the asset (under the insurance claim) and the liability (for the incident) shall be reflected on the balance sheet.
720-20-35-6
See the Claims-Made Contracts Subsection of Section 720-20-45 for guidance on offsetting insurance assets and liabilities.
720-20-35-7
See Example 4 (paragraph 720-20-55-13) for illustrations of the application of the subsequent measurement guidance for interim financial reporting when an entity's fiscal year and policy year coincide.

Interim Financial Reporting—Entity's Fiscal Year and Policy Year Do Not Coincide

720-20-35-8
When the entity's fiscal year and policy year do not coincide, the insurance premium component of expense in interim periods could be based on the estimated premium for claims-made coverage that the entity expects to be able to acquire later in the fiscal year.
720-20-35-9
When the entity's fiscal year and policy term do not coincide, an entity shall recognize all of the following elements at year-end:
  1. a
    An incurred but not reported liability related to the entity's obligation for claims and incidents that have been incurred prior to year-end but will be reportable after year-end
  2. b
    An insurance recoverable for any outstanding claims that are reimbursable under the existing claims-made policy
  3. c
    An asset for prepaid insurance premiums related to the coverage for claims and incidents that will be incurred after year-end but reported prior to the expiration of the existing claims-made policy.
720-20-35-10
The approach for accounting by policyholders who purchase claims-made insurance policies that have terms of duration that do not coincide with the entity's fiscal year is as follows:
  1. a
    At the beginning of the fiscal year the entity shall make an estimate of its future premium cost of the new claims-made policy that is expected to be purchased during the fiscal year. The entity shall also estimate the portion of that future premium cost that would relate to coverage for claims and incidents that will be incurred after the end of the fiscal year but reported prior to the expiration of that new claims-made policy; that portion represents the estimated prepaid asset at the end of the fiscal year. The estimate of the future premium cost involves estimating the effect of past claims and incidents that are expected to affect the premium level, as well as the effect of historical patterns and any new factors (such as a major change in products, manufacturing processes, or risk management systems) that are relevant.
  2. b
    At the beginning of the fiscal year the entity shall make an estimate of its incurred but not reported liability as of the end of the fiscal year. That estimate involves estimating the claims and incidents that will be incurred prior to year-end but will not be reportable until after the year-end. Presumably the estimated year-end incurred but not reported liability would closely approximate the beginning incurred but not reported liability adjusted for relevant historical patterns unless the entity has identified new factors (such as a major change in products, manufacturing processes, or risk management systems) that warrant further adjustment of the ending incurred but not reported liability.
  3. c
    The entity shall compute an estimated annual expense as the sum of all of the following:
    1. 1
      The balance of the premium cost for the claims-made policy expiring during the year
    2. 2
      The estimated future premium cost for the new claims-made policy
    3. 3
      The difference between the beginning incurred but not reported liability and the estimated year-end incurred but not reported liability
    4. 4
      The difference between the beginning and estimated ending insurance receivable related to incurred but not reported liability.
    That estimated annual expense should be recognized ratably in interim periods based on the methodology that best reflects the manner in which the benefits of the insurance premiums are consumed and the incurred but not reported liability is incurred. As indicated in paragraph 720-20-35-5(c), the method selected should be appropriate in light of the relevant facts and circumstances and consistently applied. In addition, liabilities for specific claims incurred during the year that are not included in the incurred but not reported estimate shall be recognized as expense in the period in which they are incurred.
  4. d
    The estimated year-end incurred but not reported liability should be reviewed whenever interim financial statements are prepared. Routine adjustments in the estimated liability (such as adjusting the estimated future premium cost to reflect actual) would be recognized ratably in each of the remaining interim periods. However, if events and circumstances in that interim period indicate that unusual claims and incidents have been incurred prior to the end of the interim period, the entity shall recognize in that interim period any related significant adjustments of the estimated year-end incurred but not reported liability.
  5. e
    For any insurance recoverable recognized, either related to the incurred but not reported liability or to a specific incurred claim, the entity should evaluate those assets and adjust them, if necessary, based on changes in circumstances. Paragraphs
    410-30-35-8 through 35-11
    provide further guidance on the recognition of a receivable for expected insurance recoveries.
  6. f
    Any unusual claims and incidents that have been incurred prior to the end of an interim period and that will probably be reported prior to expiration of the new claims-made insurance policy should not affect net income if they will be covered by insurance. However, both the asset (under the insurance claim) and the liability (for the incident) shall be reflected on the balance sheet.
720-20-35-11
See the Claims-Made Contracts Subsection of Section 720-20-45 for guidance on offsetting insurance assets and liabilities.
720-20-35-12
See Example 5 (paragraph 720-20-55-20) for an illustration of the application of the subsequent measurement guidance for interim financial reporting when an entity's fiscal year and policy year do not coincide.

Multiple-Year Retrospectively Rated Contracts

720-20-35-13
The insured shall account for changes in coverage in the same manner as changes in other contract costs, as indicated in paragraph 944-20-35-2. For example, the effects of decreases in coverage without a commensurate reduction in premium shall be recognized as a loss by the insured when the event causing the decrease in coverage takes place.

720-20-45Other Presentation Matters

Source downloaded: .Record version c4a2bfe8f21d. Effective date must be checked in the source.

Claims-Made Contracts

720-20-45-1
Unless the conditions of paragraph 210-20-45-1 are met, offsetting prepaid insurance and receivables for expected recoveries from insurers against a recognized incurred but not reported liability or the liability incurred as a result of a past insurable event would not be appropriate.

720-20-50Disclosure

Source downloaded: .Record version 6f9df67821fc. Effective date must be checked in the source.

Claims-Made Contracts

720-20-50-1
When an entity changes from occurrence-based insurance to claims-made insurance or elects to significantly reduce or eliminate its insurance coverage paragraphs
450-20-50-3 through 50-6
require disclosure if it is at least reasonably possible that a loss has been incurred. That paragraph also discusses disclosure with respect to unasserted claims.

720-20-55Implementation Guidance and Illustrations

Source downloaded: .Record version a974c1e17cad. Effective date must be checked in the source.

Claims-Made Contracts

Illustrations

720-20-55-1
Examples 1-3 (see paragraphs
720-20-55-2 through 55-12
) provide illustrations for applying the guidance contained in paragraphs
720-20-25-6 through 25-13
.
720-20-55-2
This Example illustrates how to assess whether an insurance policy for directors and officers liability contains a retroactive provision. The Example contains the following two Cases:
  1. a
    A policy without a retroactive provision (Case A)
  2. b
    A policy with a retroactive provision (Case B).
720-20-55-3
Entity A is a manufacturer that purchases directors and officers insurance under a claims-made insurance policy each year. Entity A immediately reports any asserted claims or incidents that could result in an asserted claim to its insurance carrier. Entity A currently has no knowledge of any unasserted claims against it and is unaware of any event that would result in any claims. Entity A considers the use of a claims-made insurance policy to be the most efficient and least costly method available to manage its insurance risk related to suits against its directors and officers. Entity A pays BrokerCo to handle its insurance needs. BrokerCo supplies Entity A with binding quotes from several insurance carriers and a comparison to binding quotes for other similar entities. Entity A believes that its premiums are comparable to those of other similar entities that have similar insurance risk profiles and no knowledge of any events or circumstances that might result in a claim. Entity A has an option to purchase tail coverage, which would effectively convert its claims-made policies into occurrence-based policies at any time. On January 1, 20X3, Entity A pays its annual premium of $5 million for its policy. The policy has a retroactive date to January 1, 20X0, which is the year that Entity A first started using the claims-made insurance approach with its insurance carrier. Entity A is unable to bifurcate its policy premium into its retroactive and prospective provisions.
720-20-55-4
In June 20X3, there is a precipitous drop in the stock price of Entity A, and a lawsuit is brought against the directors. Entity A notifies its insurer about the asserted claim, and the insurer agrees that those claims are covered by its claims-made policy in effect for 20X3.
720-20-55-5
Based on an evaluation of the circumstances, Entity A determined in 20X0 that its claims-made insurance policy is a prospective contract that does not contain any retroactive provisions. Essentially, Entity A was unaware of any known events or circumstances that might result in a claim and viewed the premiums paid for its directors and officers insurance as providing coverage against claims that might occur during the policy period. In making its determination that the claims-made insurance policy did not contain a retroactive provision, Entity A also considered the following:
  1. a
    Entity A typically uses a claims-made policy to manage its insurance risk and plans to continue purchasing a claims-made insurance policy annually.
  2. b
    Tail coverage is readily available.
  3. c
    The premium charged for the claims-made policy is not significantly in excess of premiums charged to other similar entities with similar insurance profiles.
  4. d
    The claims-made policy contains an unambiguous contract trigger to determine when claims are covered.
  5. e
    Because Entity A has no knowledge of any asserted claims or events that would result in a claim, the claims-made policy is primarily expected to cover insurance risk related to future claims.
720-20-55-6
This Case makes the same assumptions as Case A, except that the precipitous drop in the stock price of Entity A occurred in 19X9, prior to the inception of its claims-made insurance program with its insurance carrier. During the negotiation of the contract premium, Entity A discussed its concerns with its insurance carrier, and the two agreed that the retroactive date would include any claims related to the drop in the stock price. As a result, the premium was $50 million.
720-20-55-7
Based on an evaluation of the circumstances, Entity A determined in 20X0 that its claims-made insurance policy contains a retroactive provision. Entity A knows that the $50 million premium charged represents the expected costs of settling any claims related to the drop in its stock price, an event that was fully known at the inception of the contract. Entity A disclosed this fact to its insurer, and the two agreed that it might result in a claim and negotiated a premium based on that premise. In making its determination that its directors and officers policy contains a retroactive provision, Entity A also considered the following:
  1. a
    The claims-made policy was taken out in part in response to a known incident that was reported to the insurer.
  2. b
    The premium charged by the insurer includes an estimate of the expected settlement costs for the unasserted claim.
  3. c
    The premium charged primarily represents a financing of the unasserted claim.
720-20-55-8
Prior to accounting for the entire contract retroactively, Entity A should, if practicable, bifurcate the contract into its retroactive and prospective provisions and account for each separately.
720-20-55-9
On February 20, 20X2, Entity A determined that it needed to recognize a $100 million liability for environmental contamination as a result of an accident at one of its manufacturing plants. Entity A initially believed that it would manage the cleanup and any lawsuits arising from the accident through an internal self-insurance program. Subsequently, Entity A decided to purchase a claims-made insurance policy that would include all claims arising from the incident. Entity A decided that it should purchase the policy because it would be more efficient to transfer the risk associated with the development and timing of claims to a third party and representing that the risk associated with all claims had been transferred to a third party would reduce the risk profile of Entity A to its shareholders and other potential investors. On April 1, 20X2, Entity A pays InsurerCo $60 million for a claims-made insurance policy. Entity A and InsurerCo expect the claims related to the incident to be settled over a 10-year period after the purchase of the policy.
720-20-55-10
Based on an evaluation of the indicators, Entity A determines that its claims-made insurance policy contains a retroactive provision. In making that determination, Entity A specifically considered the following:
  1. a
    The claims-made policy was purchased specifically to cover known claims for which a liability had been recognized.
  2. b
    The claims-made policy effectively represented a financing of the liability previously recognized by Entity A.
  3. c
    The premium charged was primarily based on expected payouts for an event that had already occurred.
720-20-55-11
HealthCo is a health care provider that purchases medical malpractice insurance in order to manage its insurance risks. HealthCo purchases a claims-made insurance policy each year from its insurance carrier. HealthCo would be able to purchase tail coverage from its insurance carrier if it chose to do so. Although HealthCo has no knowledge of any asserted or unasserted claims against it, HealthCo estimates and recognizes a liability for claims incurred but not reported of $25 million at December 31, 20X2, based on actuarial reviews of its historical claims reporting and payment patterns. HealthCo engages an insurance brokerage entity to ensure that its insurance premiums are consistent with those offered to similar entities with similar insurance risks. During 20X2, HealthCo paid out $95 million of malpractice claims that were fully covered by its insurance program. On January 1, 20X3, HealthCo pays its annual premium of $100 million for its claims-made policy. HealthCo expects that it will require a liability of $29 million on December 31, 20X3. The policy does not cover incidents occurring prior to the inception of the claims-made insurance program with that insurance carrier. In negotiating its policy with InsurerCo, HealthCo asserts to InsurerCo that it is unaware of any specific, current claims (asserted or unasserted) against it.
720-20-55-12
Based on an evaluation of the indicators, HealthCo determines that its claims-made insurance policy is a prospective contract that does not contain any retroactive provisions. In making that determination, HealthCo specifically considered the following:
  1. a
    There are no known asserted or unasserted claims that are expected to be covered by the policy. The liability recognized for incurred but not reported claims would not preclude HealthCo from concluding that its claims-made insurance policy is prospective as HealthCo represented that it did not know of any asserted claims.
  2. b
    Tail coverage is readily available.
  3. c
    The premium charged for the claims-made policy is not significantly in excess of premiums charged for similar policies with no retroactive dates.
  4. d
    There is a clear and unambiguous contract coverage trigger.
720-20-55-13
This Example provides illustrations for applying the guidance contained in paragraphs
720-20-35-3 through 35-7
. This Example contains the following Cases:
  1. a
    Calculations are made using assumed facts (Case A).
  2. b
    The entity revises its incurred but not reported estimate (Case B).
  3. c
    The entity discovers a defect in the manufacturing process (Case C).
720-20-55-14
Cases A, B, and C illustrate how to calculate various required amounts (for example, the expected annual insurance expense, the expected quarterly insurance expense, the incurred but not reported liability, the known claims liability and the prepaid insurance) under each Case's different circumstances. Cases A, B, and C share all of the following assumptions.
  1. a
    Entity A purchases claims-made policies every year for its insurable risk. The insurance arrangement meets the criteria for prospective treatment as described in paragraphs
    720-20-25-7 through 25-8
    . The policy has a $500,000 per incident deductible and a $2 million per incident maximum with a policy limit of $15 million. When calculating the insurance recoverable related to incurred but not reported incidents, Entity A assumes that approximately 50 percent of the gross claim value will be recovered because of the deductible. Entity A does not anticipate incurring any losses in excess of the policy's maximums.
  2. b
    Accrued incurred but not reported liability at 12/31/X0: $2 million.
  3. c
    Receivable for insurance recoverable at 12/31/X0: $1 million.
  4. d
    Estimated incurred but not reported liability at 12/31/X1: $2.2 million.
  5. e
    Estimated receivable for insurance recoverable at 12/31/X1: $1.1 million.
  6. f
    Premium for claims-made policy for year ending 12/31/X1, payable 1/1/X1: $1.6 million.
  7. g
    Value of claim for an incident reported during the second quarter (the claim is covered by the insurance policy subject to a $500,000 deductible and was both paid to the claimant and recovered from the carrier during the third quarter): $750,000.
  • Computations (in thousands): Expected annual expense = annual premium + expected increase in IBNR liability - expected increase in insurance recoverable = "$1,600 + ($2,200 - $2,000) - ($1,100 - $1,000)" = "$1,600 + $200 - $100" = "$1,700 " Expected quarterly expense = "$1,700 ÷ 4 = $425" IBNR: Incurred but not reported
720-20-55-15
The following table illustrates computation of quarterly insurance expense.
  • INBR liability (a) (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" " $(2,000)" " $(2,050)" " $(2,100)" " $(2,150)" Add: accrual (b) -50 -50 -50 -50 "Balance, end of quarter" " $(2,050)" " $(2,100)" " $(2,150)" " $(2,200)" Known claims liability (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" $- $- $(750) $- Add: claims made - (750) - - Less: claims paid - - 750 - "Balance, end of quarter" $- $(750) $- $- Prepaid insurance (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" $- " $1,200 " $800 $400 Add: premium payments made " 1,600 " - - - Less: amortization (c) (400) (400) (400) (400) "Balance, end of quarter" " $1,200 " $800 $400 $- Insurance recoverable (d) (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" " $1,000 " " $1,025 " " $1,300 " " $1,075 " Add: Expected recoveries 25 275 25 25 Less: Recoveries received - - (250) - "Balance, end of quarter" " $1,025 " " $1,300 " " $1,075 " " $1,100 " Quarterly expense (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 Amortization of prepaid insurance $400 $400 $400 $400 Accrual of IBNR liability 50 50 50 50 Accrued claims reported - 750 - - Accrued insurance recoveries (25) (275) (25) (25) Total expense $425 $925 $425 $425 IBNR: Incurred but not reported (a) "Paragraph 210-20-45-1 provides additional guidance on when the legal right to setoff exists and should be used to determine whether prepaid insurance (or insurance recoverable) and a recognized incurred but not reported liability (or the claim liability incurred as a result of a reported event) may be offset. Such offsetting would not be appropriate unless the conditions of that paragraph are met. For income statement purposes, however, the expenses related to claims reported and the income related to insurance recoverables may be offset." (b) Straight-line accrual of the incurred but not reported liability is assumed for purposes of simplicity but would only be appropriate if management expects that the underlying incurred but not reported claims covered by the insurance arrangement would occur evenly throughout the year. See paragraphs 720-20-35-3 through 720-20-35-7. (c) Straight-line amortization of the prepaid insurance premium is assumed for purposes of simplicity only. See paragraph 720-20-35-5. (d) Paragraphs 410-30-35-8 through 410-30-35-11 provide further guidance on the recognition of a receivable for expected insurance recoveries.
720-20-55-16
In this Case Entity A revises its estimated year-end incurred but not reported liability from $2.2 million to $2.6 million in the second quarter due to overall increases in settling claims, which is considered a routine adjustment by management, and Entity A determines that a reasonable matching of the additional cost to the periods benefited results in recognizing one-half of the adjustment in the second quarter and the remainder of the adjustment over the remaining interim periods on a pro rata basis.
720-20-55-17
The following table illustrates computation of quarterly insurance expense.
  • IBNR liability (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" " $(2,000)" " $(2,050)" " $(2,300)" " $(2,450)" Add: accrual (50) (250) (150) (150) "Balance, end of quarter" " $(2,050)" " $(2,300)" " $(2,450)" " $(2,600)" Known claims liability (in thousands): Same as Example 5. Prepaid insurance (in thousands): Same as Example 5. Insurance recoverable (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" " $1,000 " " $1,025 " " $1,400 " " $1,225 " Add: Expected recoveries 25 375 75 75 Less: Recoveries received - - (250) - "Balance, end of quarter" " $1,025 " " $1,400 " " $1,225 " " $1,300 " Quarterly expense (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 Amortization of prepaid insurance $400 $400 $400 $400 Accrual of IBNR liability 50 250 150 150 Accrued claims reported - 750 - - Accrued insurance recoveries (25) (375) (75) (75) Total expense $425 " $1,025 " $475 $475 IBNR: Incurred but not reported
720-20-55-18
In this Case Entity A discovers a defect in the manufacturing process in the third quarter and corrects it. Entity A evaluates whether its incurred but not reported liability warrants adjustment and concludes that an additional $2.1 million liability is needed for claims that are expected to be reported after year-end. Entity A considers the discovery of the defect to be an unusual event and determines that a reasonable matching of the additional cost to the periods benefited results in the entire adjustment being recognized in the third quarter.
720-20-55-19
The following table illustrates computation of quarterly insurance expense.
  • IBNR liability (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" " $(2,000)" " $(2,050)" " $(2,300)" " $(2,450)" Add: accrual (50) (250) (150) (150) "Balance, end of quarter" " $(2,050)" " $(2,300)" " $(2,450)" " $(2,600)" Known claims liability (in thousands): Same as Example 5. Prepaid insurance (in thousands): Same as Example 5. Insurance recoverable (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" " $1,000 " " $1,025 " " $1,400 " " $1,225 " Add: Expected recoveries 25 375 75 75 Less: Recoveries received - - (250) - "Balance, end of quarter" " $1,025 " " $1,400 " " $1,225 " " $1,300 " Quarterly expense (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 Amortization of prepaid insurance $400 $400 $400 $400 Accrual of IBNR liability 50 250 150 150 Accrued claims reported - 750 - - Accrued insurance recoveries (25) (375) (75) (75) Total expense $425 " $1,025 " $475 $475 IBNR: Incurred but not reported
720-20-55-20
This Example provides an illustration for applying the guidance contained in paragraphs
720-20-35-8 through 35-12
. This Example has the following assumptions:
  1. a
    Entity A purchases claims-made policies every year for its insurable risk. The insurance arrangement meets the criteria for prospective treatment as described in paragraphs
    720-20-25-7 through 25-8
    . The policy has a $500,000 per incident deductible and a $2 million per incident maximum with a policy limit of $15 million. When calculating the insurance recoverable related to incurred but not reported incidents, Entity A assumes that approximately 50 percent of the gross claim value will be recovered because of the deductible. Entity A does not anticipate incurring any losses in excess of the policy's maximums.
  2. b
    The policy period runs from May 1 to April 30, and uses a December 31 year-end for financial reporting purposes.
  3. c
    Accrued incurred but not reported liability at 12/31/X0: $2 million.
  4. d
    Receivable for insurance recoverable at 12/31/X0: $1 million.
  5. e
    Estimated incurred but not reported liability at 12/31/X1: $2.2 million.
  6. f
    Estimated receivable for insurance recoverable at 12/31/X1: $1.1 million.
  7. g
    Premium for one year claims-made policy expiring 4/30/X1: $1.2 million.
  8. h
    Estimated premium for one-year claims-made policy commencing 5/1/X1: $1.8 million.
  9. i
    Value of claim for an incident reported during the second quarter (the claim is covered by the insurance policy subject to a $500,000 deductible and was both paid to the claimant and recovered from the carrier during the third quarter): $750,000.
  • Computations (in thousands): Expected annual expense = premium costs + expected increase in IBNR liability - expected increase in insurance recoverable = " {[$1,200 × (4/12)] + [$1,800 × (8/12)]} + ($2,200 - $2,000) - (1,100 - 1,000) " = " ($400 + 1,200) + $200 - $100 " = "$1,700 " Expected quarterly expense = " $1,700 ÷ 4 = $425 " IBNR: Incurred but not reported
  • INBR liability (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" " $(2,000)" " $(2,050)" " $(2,100)" " $(2,150)" Add: accrual (50) (50) (50) (50) "Balance, end of quarter" " $(2,050)" " $(2,100)" " $(2,150)" " $(2,200)" Known claims liability (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" $- $- $(750) $- Add: claims made - (750) - - Less: claims paid - - 750 - "Balance, end of quarter" $- $(750) $- $- Prepaid insurance (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" $- " $1,200 " " $1,400 " $400 Add: premium payments made " 1,600 " - - - Less: amortization (400) (400) (400) (400) "Balance, end of quarter" " $1,200 " $800 $400 $- Insurance recoverable (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 "Balance, beginning of quarter" " $1,000 " " $1,025 " " $1,300 " " $1,075 " Add: Expected recoveries 25 275 25 25 Less: Recoveries received - - (250) - "Balance, end of quarter" " $1,025 " " $1,300 " " $1,075 " " $1,100 " Quarterly expense (in thousands): Qtr 1 Qtr 2 Qtr 3 Qtr 4 Amortization of prepaid insurance $400 $400 $400 $400 Accrual of IBNR liability 50 50 50 50 Accrued claims reported - 750 - - Accrued insurance recoveries (25) (725) (25) (25) Total expense $425 $925 $425 $425 IBNR: Incurred but not reported

720-20-60Relationships

Source downloaded: .Record version 69034ca22beb. Effective date must be checked in the source.

Claims-Made Contracts

Health Care Entities

720-20-60-1
For guidance on the recognition of a liability for claims incurred but not reported, see paragraph 954-450-25-2.

Related subtopics