1. ASU 2015-09 Short Duration Contracts – New GAAP Disclosures
October 19, 2017

2. New Disclosure Requirements for P&C Insurance
Background
Key provisions
Disclosures
Disaggregation
Claim counts
Regulatory

3. Background Issued May 2015 by FASB
FASB thought no additional burden since already preparing Schedule P
Applicable only to short-term duration contracts (ASC )
Contract is for a fixed period of short duration
Contract can be cancelled and at the end of contract period can adjust provisions
Requires additional disclosures
Effective date:
Periods beginning after 12/15/15 – public (2016 y/e)
Periods beginning after 12/15/16 – private (2017 y/e)

4. Required Disclosures
Tabular presentation of undiscounted, incurred claims and allocated claim adjustment expenses by AY (accident year), net basis, for up to 10 years (triangle)
Tabular presentation of paid claims by AY, net basis, for up to 10 years (triangle)
IBNR as of balance sheet date by AY
Cumulative claim count information for each AY
Reconciliation of claims development tables to balance sheet liabilities
Historical average annual percentage payout of incurred claims

5. Required Disclosures (continued)
Description of methodology for determining IBNR
Description of methodology for calculating claim counts
Explanation if it is impractical to prepare required disclosure
Information regarding any loss reserves that have been discounted

6. Required disclosures – Incurred claims development table example

7. Required disclosures – Paid claims development table example

8. Required disclosures - Reconciliation

9. Required disclosures – Historical claims duration

10. Disaggregation Disclosures should be “aggregated or disaggregated”
“Useful” information is not obscured by
Insignificant detail
Aggregation of items with significantly different characteristics
Consider how liabilities presented for other purposes – i.e. board reports, CEO, CFO

11. Disaggregation (Continued)
Categories to consider:
Type of coverages – property vs liability, w/c, etc
Claims duration
Market or type of customer – personal lines vs commercial
Occurrence vs claims made
Number of years to disclose
Period of time claims typically remain outstanding
Not to exceed 10 years – if longer than 5 years should start with 5 in initial application

12. Claim counts
For each disaggregated table, disclose cumulative counts as of balance sheet date by AY
Describe whether counts are measured by claim event or individual claimant and how claims that do not result in a liability are considered
Significant changes to the count methodology
Identify situations where claim count information is unavailable and why it is impractical to disclose

13. Example disclosures
The reserve to property-liability insurance claims and claims expense is an estimate based upon the facts of each case and the Company’s experience with similar cases. Reserve estimates are derived using an actuarial estimation process in which historical loss patterns are applied to actual paid losses and reported losses for an accident year to create an estimate of how losses are likely to develop over time.
The cumulative number of reported claims is identified by coverage and excludes reported claims for industry pools and facilities where information is not available.

14. Example disclosures
We establish and evaluate unpaid claim liabilities using standard actuarial loss development methods and techniques. The actuarial methods utilize historical claims data, adjusted to reflect perceived changes in loss patterns. IBNR liabilities are estimated by projecting the ultimate number of claims expected (reported and unreported) for each significant coverage and deducting reported claims to produce estimated unreported claims. The product of the average cost per unreported claim and the number of unreported claims produces the IBNR liability estimate.
Claims are counted when accidents that may result in a liability are reported and are based on policy coverage.

15. Example disclosures
Liabilities for unpaid losses and loss adjustment expenses include case and IBNR estimates. We evaluate reported loss amounts and if deemed appropriate, we establish case liabilities based on our estimates. We primarily use Bornhuetter-Ferguson methods to estimate IBNR amounts for claims liabilities. The expected case loss emergence patterns and expected loss ratios are the critical assumption applicable to these estimates.
Claim count data is excluded, as such information is not provided consistently by ceding companies under our contracts or is otherwise considered unreliable.

16. Regulatory Not necessarily intended for regulators Rejected by NAIC
Have access to annual statement, actuarial analysis, etc
Rejected by NAIC
Vermont – issued memo – pure captives can request permitted practice to have qualified opinion
Missouri – can also request waiver
Utah – has not issued memo – would like captives to try to comply with standard, but will issue permitted practice on a case by case basis or will accept qualified opinion

17. Questions