Accounting Standard Updates, Captive Insurance

Demystifying Insurance Company Reporting

The insurance industry is one of the most highly regulated industries in the United States. There is no shortage of state and federal rules governing how property and casualty insurance companies are to conduct business. From risk management to corporate governance, insurance companies are required to follow a set of strict business rules. Beyond these regulations, insurance companies also have a very specific set of rules to follow when presenting financial statement information. According to Statutory Accounting Principles (SAP), insurance companies are required to document and report revenue, expenses and transactions that impact the financial health of the company. While these rules are complex, it’s important for insurance companies to be aware of their responsibilities under these guidelines. To help clients, prospects and others become familiar with key financial statement presentation requirements, JLK Rosenberger has provided a summary of key requirements below.

Financial Statement Reporting Requirements

  • Repurchase Agreements – If a company has entered into a repurchase agreement there are several disclosures that must be made. These include a description of the policy for requirements, collateral or other security and fair value of loan, description of securities underlying the agreements and weighted average interest rates for securities subject to repurchase, subject to dollar repurchase and dollar reverse repurchase agreements.
  • Loan Backed Securities – If a company has loan backed securities they are required to include specific disclosures in their annual financial statement. These include fair value measurements in accordance with SSAP 100, concentration of credit risk, loan backed securities basis, adjustment methodology and a description of sources used to determine prepayment assumptions (i.e. public market quotes, broker provided fair value or pricing matrix).
  • Unpaid Claims, Losses and Loss Adjustment Expenses – There are several unpaid claims and loss expenses that must be disclosed each year as they are applicable. These include the balance in liabilities for unpaid claims and loss/claims adjustment expense reserves at the beginning/ end of the year, summary of management’s policies for estimating liabilities for losses/loss claims, amount paid and reserved for losses related to asbestos and environmental claims, and estimates of anticipated salvage and subrogation deducted from the liability of unpaid claims.
  • Summary of Significant Accounting Policies – All insurance companies are required to provide a summary of their accounting policies. Specifically, they must disclose all policies that materially affect the assets, liabilities, capital and surplus or results of operations. Some of these policies may include the basis at which short term investments are disclosed, basis at which bonds and common stocks are stated, description of the derivatives accounting policy, and the accounting policy of the insurer with respect to investments in joint ventures, partnerships and limited liability companies.

Take the Next Step

While not all reporting disclosures are applicable to each insurance company it’s essential to have an understanding of the framework to ensure optimal compliance for your organization. To learn more about the reporting requirements, click here to download a copy of the FS-204 Disclosure Checklist.