Accounting Statement 84-1
DEPARTMENT OF INSURANCE
425 S. Market Street
San Francisco, CA 94105
Accounting Statement 84-1
November 26, 1984
TO: All Insurers Authorized to Transact Insurance in the State
SUBJECT: Financial Statement Accounting for Punitive or Monetary
Damages and Claim and Award Contingencies, and
Reports to the Insurance Commissioner of Material Awards,
Settlements, Fines, and Penalties
Financial Statement Accounting
This Accounting Statement establishes guidelines for financial accounting
and reporting for loss contingencies applicable to punitive damage claims
and awards, and other claims, fines and penalties arising from
underwriting and claims activities of insurers that may result in
monetary damages in excess of applicable policy limits.
Until the National Association of Insurance Commissioners prescribes
specific statutory accounting requirements for such damage claims,
awards, fines and penalties, admitted insurers should be guided by the
standards of financial accounting and reporting set forth in the Financial
Accounting Standard Board (FASB) No. 5, Accounting for Contingencies.
As provided by FASB No. 5, an estimated l oss, whether such claim is
asserted or unasserted, shall be accrued if it is both probable that an
asset has been impaired and the amount of the loss can be reasonably
The accrual of punitive or monetary damage loss contingencies, related
judgment or settlement amounts, and claims, fines and penalties may be
charged to the underwriting loss or expense account in the annual
statement; however, these amounts must be deducted from losses or
expenses prior to determining any underwriting or rating calculations.
The Department, however, separately in the statement of operations in
the annual statement.
Reports to the Insurance Commissioner
The details of those punitive damage amounts and other monetary fines
and penalties which are material to the insurer's statutory financial
statement, shall be reported in a supplemental letter addressed to
Norris Clark, Chief, Financial Analysis Division,
Department of Insurance, State of California,
300 S. Spring Street,
Los Angeles, California 90013,
on or before 45 days following the final judgment or settlement payment to
the claimant or claimants. Final judgment for the purposes of this
Accounting Statement is defined as any judgment or amount from which
all rights of appeal have been exhausted.
Punitive damage judgment or settlement amounts and other monetary
fines or penalties are deemed material if the amount of the actual
payment or payments related to a specific loss or activity exceed,
either singly or in the aggregate, one of the following:
(1) 5% of the insurer's surplus as regards policyholders or
(2) 3% of the affected loss or benefit accounts as reported in the
annual statement filed by the insurer for the preceding year.
The supplemental reporting procedure described above is in addition to
the appropriate disclosure of loss contingencies in the notes to financial
statements included in the insurer's annual statement as contemplated
by FASB No. 5.
The provisions of this Accounting Statement shall be effective for all
loss contingencies attributable to punitive damage claims, awards or
settlement amounts and other material monetary fines and penalties
that are to be paid or incurred after December 31, 1983. This
statement supersedes the Department of Insurance Notice: Financial
Statement Treatment of Punitive Damage Awards, dated August 11,
1982, issued to all admitted insurers.