Governmental Accounting Standards Board of the Financial Accounting Foundation

IMPLEMENTATION GUIDE Guide to Implementation of GASB Statement 10 on Accounting and Financial Reporting for Risk Financing and Related Insurance Issues Questions and Answers Governmental Accounting Standards Board of the Financial Accounting Foundation

GASB IMPLEMENTATION GUIDES Guide to Implementation of GASB Statement 3 on Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements (GQA03) Guide to Implementation of GASB Statement 9 on Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting (GQA09) Guide to Implementation of GASB Statement 10 on Accounting and Financial Reporting for Risk Financing and Related Insurance Issues (GQA10) For information on prices and discount rates, please contact: Order Department Governmental Accounting Standards Board 401 Merritt 7 P.O. Box 5116 Norwalk, CT 06856-5116 (203) 847-0700, Ext. 10

IMPLEMENTATION GUIDE Guide to Implementation of GASB Statement 10 on Accounting and Financial Reporting for Risk Financing and Related Insurance Issues Questions and Answers Governmental Accounting Standards Board of the Financial Accounting Foundation 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116

Copyright 1993 by Governmental Accounting Standards Board. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Governmental Accounting Standards Board. Library of Congress Catalog Card Number: 93-80691 ISBN 0-910065-59-4

IMPLEMENTATION GUIDE Guide to Implementation of GASB Statement 10 on Accounting and Financial Reporting for Risk Financing and Related Insurance Issues Questions and Answers Contents Page Numbers Foreword... Preface... iii v Question Numbers Questions and Answers Public Entity Risk Pools... 1 67 Definition and Scope... 1 3 Determining What Is a Pool... 4 7 Types of Public Entity Risk Pools... 8 9 Pool Sponsors... 10 11 Unemployment Compensation... 12 40 Recognition and Measurement... 12 22 Revenue Recognition... 15 17 Dividends... 18 22 Premium deficiency... 23 37 Expense and Liability Recognition and Measurement... 23 Acquisition costs... 24 26 Claim adjustment expenses... 27 29 IBNR claims... 30 Recoveries from subrogation... 31 33 Reinsurance and excess insurance... 34 Deductibles and self-insured retentions... 35 36 Discounting... 37 Investments... 38 40 Real estate... 40 vii

Question Numbers Disclosures and Required Supplementary Information... 41 67 Note Disclosures... 41 50 Description of pool and responsibilities... 42 45 Basis for estimating liabilities... 46 47 Anticipated investment income for premium deficiency... 48 Reconciliation of unpaid claims... 49 50 Required Supplementary Information... 51 67 SEC requirements... 53 Reconciliation with financial statements... 54 55 Unallocated claim adjustment expenses... 56 Inclusion of IBNR claims... 57 Discounted amounts... 58 Policy-year basis... 59 60 Additional disclosures... 61 62 Presentation... 63 65 Source of underlying loss data... 66 Reinsurance recoveries... 67 Entities Other Than Pools... 68 110 Definition and Scope... 68 76 Fund Classification... 69 72 Employee Benefits... 73 74 Environmental Liabilities... 75 Stand-Alone Entities... 76 Recognition and Measurement... 77 102 General Fund... 77 78 Internal Service Fund... 79 81 Revenue... 80 81 Colleges and Universities... 82 Liability Measurement... 83 98 FASB Statement 5... 84 Discounting... 85 IBNR Claims... 86 89 Use of third-party insurer... 90 Claims-made policies... 91 viii

Question Numbers Claims-paid policies... 92 Retrospectively rated policies and contracts... 93 Deductibles and self-insured retentions... 94 Costs related to claims... 95 96 Annuity contracts... 97 98 Participation in Pool without Transfer of Risk... 99 Participation in Risk-Sharing Pool... 100 102 Disclosures... 103 107 Liability Reconciliation... 103 104 Component Units... 105 106 Subsequent Events... 107 Effective Date and Implementation... 108 110 Page Numbers Glossary... 41 Appendix 1: Determining What Is a Public Entity Risk Pool... 47 Appendix 2: Calculation of Pool Premium Deficiencies... 55 Appendix 3: Illustrative Note Disclosures... 57 Appendix 4: Standards Section from GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues... 67 Appendix 5: Topical Index... 81 ix