Asset recovery

[FranH-EH]

One of our regulated health insurance companies in Connecticut has recently paid guaranty fund assessments. The first one was paid at the end of 2016 relating to a Federally funded health insurance co-op that went insolvent. The second one related to two health insurers that went insolvent that were domiciled in Pennsylvania. These were retrospectively rated adjustments.

The question arises under SSAP35R and ASC 405 whether a full recovery (Asset) can be recorded right away for the future premium tax credits that are expected to be realized.

Can you please provide some clarity on the timing of recording the Asset and its admissibility?

Paragraph ASC 405-30-25-8: Asset for Premium Tax Offsets and Policy Surcharges
?When it is probable that a paid or accrued assessment will result in an amount that is recoverable from premium tax offsets or policy surcharges, an asset should be recognized for that recovery.?

Paragraph ASC 405-30-25-8 states that ?For retrospectively rated premium based assessments, to the extent that it is probable that paid or accrued assessments will result in a recoverable amount in a future period from business currently in force considering appropriate persistency rates for long-term duration contracts an asset should be recognized at the time the liability is recorded.

SSAP35R paragraph 11 discusses asset recoverability and states in the last sentence that ?For short term- health contracts subject to long-term care assessments, appropriate renewal rates may be considered in evaluating recoverability of premium tax offsets and surcharges.?

[Glenn]

Hello Fran,
I believe for your question :
Can you please provide some clarity on the timing of recording the Asset and its admissibility?
You should look to SSAP 35R paragraph 10 and the appropriate section for your facts and circumstances. You cite paragraph 11 but that really is for impairment guidance and you also cite the piece on long term care assessments specifically.

Here's the excerpt of SSAP 35R paragraph 10, highlighting some key points for you.

10. The liability for accrued assessments shall be established gross of any probable and estimable recoveries from premium tax credits and premium surcharges. When it is probable that a paid or accrued assessment will result in an amount that is recoverable from premium tax offsets or policy surcharges, an asset shall be recognized for that recovery in an amount that is determined based on current laws, projections of future premium collections or policy surcharges from in-force policies, and as permitted in accordance with paragraphs 10.a., 10.b. and 10.c. Any recognized asset from premium tax credits or policy surcharges shall be re-evaluated regularly to ensure recoverability. Upon expiration, tax credits no longer meet the definition of an asset and shall be written off.
a. For assessments paid before premium tax credits are realized or policy surcharges are collected, an asset results, which represents a receivable for premium tax credits that will be taken and policy surcharges which will be collected in the future. These receivables, to the extent it is probable they will be realized, meet the definition of assets, as specified in SSAP No. 4?Assets and Nonadmitted Assets and are admitted assets to the extent they conform to the requirements of this statement. The asset shall be established and reported independent from the liability (not reported net).

b. Assets recognized from accrued liability assessments shall be determined in accordance with the type of guaranty fund assessment as detailed in the following subparagraphs. Assets recognized from accrued liability assessments meet the definition of an asset under SSAP No. 4, and are admitted assets to the extent they conform to the requirements of this statement.

i. For retrospective-premium-based and loss-based assessments, to the extent that it is probable that accrued liability assessments will result in a recoverable amount in a future period from business currently in-force considering appropriate persistency rates for long-duration contracts, an asset shall be recognized at the time the liability is recorded. In-force policies do not include expected renewals of short-term contracts except in cases when retrospective-premium-based assessments are imposed on short-term health contracts for the insolvencies of insurers that wrote long-term care contracts. In which case, to the extent that it is probable that accrued liability assessments will result in a recoverable amount in a future period from business currently in force, appropriate renewal rates of short-term health contracts shall be taken into consideration when recognizing the asset.

ii. For prospective-premium-based assessments, the recognition of assets from accrued liability assessments is limited to the amount of premium an entity has written or is obligated to write and to the amounts recoverable over the life of the in-force policies. This SSAP requires reporting entities to recognize prospective-based-premium assessments as the premium is written or obligated to be written by the reporting entity. Accordingly, the expected premium tax offset or policy surcharge asset related to the accrual of prospective-premium-based assessments shall be based on and limited to the amount recoverable as a result of premiums the insurer has written or is obligated to write.

c. An asset shall not be established for paid or accrued assessments that are recoverable through future premium rate structures.

Regards,
Glenn S Sackett

[FranH-EH]

Hi Glenn,

Thanks for the response, my Assistant Controller, Mat Rubin with like contact you directly in regards your responses, is it possible you can reach out to him at 646-447-5897 or can he contact you directly if you provide a your contact information?