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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Other Accounting Guidance

In EITF 92‐9, it was noted that industry practice is to amortize the present value of future profits (PVP) using an interest method with accrual of interest added to the unamortized balance. In the past, there has been some diversity in the application of this method in practice, and so the EITF mandates that the interest rate used to amortize PVP should be the liability or contract rate. It also states that changes in estimates of future gross profits on FAS 97 contracts should be accounted for as a catch‐up adjustment. And finally, PVP and any related liability should be subject to the premium deficiency test required in FAS 60 and 97.

A number of issues involving retrospective rating provisions contained in reinsurance contracts were resolved by EITF 93‐6, including criteria for the recognition and amounts of assets and liabilities by the assuming and ceding enterprises, respectively, and accounting for changes in coverage during the reinsurance period. A number of conditions were identified, satisfaction of which are necessary for a contract to be treated as reinsurance, and in their absence such contracts are to be accounted for by the deposit method.

EITF 93‐14 addresses how enterprises other than insurance companies should account for contracts with insurance companies covering various types of risks such as product and environmental liability risks. This EITF also addresses “pooled risk” contracts and reinsurance contracts entered into by a captive ...

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