Summary of Statement No. 113
Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts (Issued 12/92)
Summary
This Statement specifies the accounting by insurance enterprises
for the reinsuring (ceding) of insurance contracts. It amends FASB
Statement No. 60, Accounting and Reporting by Insurance
Enterprises, to eliminate the practice by insurance enterprises
of reporting assets and liabilities relating to reinsured contracts
net of the effects of reinsurance. It requires reinsurance
receivables (including amounts related to claims incurred but not
reported and liabilities for future policy benefits) and prepaid
reinsurance premiums to be reported as assets. Estimated
reinsurance receivables are recognized in a manner consistent with
the liabilities relating to the underlying reinsured contracts.
This Statement establishes the conditions required
for a contract with a reinsurer to be accounted for as reinsurance
and prescribes accounting and reporting standards for those
contracts. The accounting standards depend on whether the contract
is long duration or short duration and, if short duration, on
whether the contract is prospective or retroactive. For all
reinsurance transactions, immediate recognition of gains is
precluded unless the ceding enterprise's liability to its
policyholder is extinguished. Contracts that do not result in the
reasonable possibility that the reinsurer may realize a significant
loss from the insurance risk assumed generally do not meet the
conditions for reinsurance accounting and are to be accounted for
as deposits.
This Statement requires ceding enterprises to
disclose the nature, purpose, and effect of reinsurance
transactions, including the premium amounts associated with
reinsurance assumed and ceded. It also requires disclosure of
concentrations of credit risk associated with reinsurance
receivables and prepaid reinsurance premiums under the provisions
of FASB Statement No. 105, Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk.
This Statement applies to financial statements for
fiscal years beginning after December 15, 1992, with earlier
application encouraged.
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