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New SOP on foreign reinsurance.

Accounting for Foreign Property and Liability Reinsurance, Statement of Position no. 92-5, was released in June by the American Institute of CPAs as a supplement to the AICPA Audit and Accounting Guide Audits of Property and Liability Insurance Companies.

The new SOP provides guidance on how U.S. companies should account for property and liability reinsurance that has been assumed from foreign insurance companies (foreign reinsurance).

Three methods currently are used in the United States to account for foreign property and liability reinsurance: the periodic method, the open year method and the zero balance method.

The SOP says the periodic method should be used to account for foreign reinsurance premiums except when, because of local revenue recognition policies, the foreign ceding company cannot provide information required by the assuming company to estimate both the ultimate premiums and the appropriate periods of recognition in accordance with U.S. generally accepted accounting principles. In such circumstances, the open year method should be used.

However, the SOP warns the periodic and open year methods are not interchangeable in the same circumstances. Moreover, the zero balance method should not be used.

The SOP's provisions are effective for contracts entered into in fiscal years beginning on or after December 15, 1992.

Copies of SOP no. 92-5 (product no. 014862) are available for $5 apiece by calling the AICPA order department at (800) 334-6961 [(800) 248-0445 in New York State].
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Title Annotation:Statement of Position no. 92-5
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Aug 1, 1992
Previous Article:Guide on implementing GASB 9.
Next Article:AICPA issues three audit risk alerts.

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