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CA Department of Insurance

Accounting Statement 89-2

45 Freemont Street
San Francisco, CA 94105

                                                 Accounting Statement 89-2
                                                 June 16, 1989

TO: All Property and Casualty Insurers Authorized to
Transact Insurance in the State of California and Other
Interested Persons

SUBJECT: Financial Statement Accounting and Reporting
of Refunds or Potential Refunds Under Proposition 103

Introduction and Scope:

This Accounting Statement establishes the guidelines for accounting
and reporting of refunds or potential refunds associated with the rate
rollback provisions enacted by Proposition 103.  This Department has
determined that additional disclosures of the impact or potential
impact of the rollback provisions on the financial condition of insurers
are now necessary.

Financial Statement Accounting and Disclosure:

The requisite accounting and disclosure is as follows:

1.   If a company has acquiesced to rollback its rates (i.e., has
     not filed for an exemption from the rollback), unpaid refunds
     should be shown as a separate write-in liability, not an increase in
     unearned premiums.  If all refunds (or portion thereof) have been
     made prior to the financial statement date (initially June 30, 1989),
     such refunds should be accounted for as return premiums.  In the
     case where refunds have been paid prior to the financial statement
     date, a footnote disclosure of the amounts refunded pursuant to
     Proposition 103 shall be made.  Such disclosure should be similar to
     the following:

          Earned premiums reported on the Statement of Income, line 1,
          column 1 of page 4, include return premiums of $XX refunded
          pursuant to the provisions of Proposition 103.

2.   If an insurer has filed for an exemption from the rate
     rollback, appropriate disclosure in the form of a "Note to the
     Financial Statement" shall be made.  Such disclosure should be
     substantially similar to the following:

          On November 8, 1988, California voters passed an initiative
          known as Proposition 103 which was subsequently upheld in
          large part by the California Supreme Court in a decision filed
          May 4, 1989.  The proposition provides, among other things,
          that rated for automobile and most other insurance policies
          issued or renewed on or after November 8, 1988, be rolled
          back to the levels of November 8, 1987 and then reduced by
          an additional 20%.  Relief from the rollback can be
          obtained from the Insurance Commissioner if she finds that the
          rollback is confiscatory (i.e., does not allow a fair and
          reasonable return.  A request for exemption from the rollback
          has been filed with the Commissioner.  If the exemption is not
          granted in its entirety by the Commissioner. Refunds pursuant
          to the rollback for policies issued or renewed between
          November 8, 1988 and the date of this financial statement
          (initially June 30, 1989) represent a contingent liability of
          approximately $XX before income taxes.  Such amount is
          deemed material/immaterial.  As the ultimate outcome of the
          request for exemption cannot presently be determined, there
          has been no provision In the accompanying financial statement
          for any liability or loss which may result from a denial or
          partial denial of the exemption request. 

Effective Date:

The provisions of this accounting statement shall be effective
immediately.  Therefore, the quarterly financial statement as of
June 30, 1989 shall include the required accounting and disclosure.
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