Statement of Financial Accounting Standards, No. 5, Accounting for Contingencies

Provides the conditions necessary before a contingent loss or gain can/must to recognized in a companies’ GAAP financial statements. The conditions are essentially that it is probable that the loss(/gain) was incurred and that it can be reasonably estimated. Specifically prohibits setting up catastrophe reserves for future catastrophes. Also discusses self-insurance reserves, product warranty reserves, unearned premium reserves (relative to catastrophe risk), treatment of “premium” payments where no risk transfer exists and treatment of payments to a self-insurance pool or mutual company (i.e. are they capital contributions or premium). KEY WORDS: Accounting, Catastrophes, Financial Reinsurance, Financial Reporting, Financial Reporting, GAAP, Pools and Associations, Reserving, Unearned Premiums.