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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 17 – Risk Management
Public Entity Risk Pool

A public entity risk pool is defined as a cooperative group of governmental entities joining together to finance an exposure, liability or risk. Risk may include property and liability, workers’ compensation or employee health care. A pool may be a stand-alone agency or included as part of a larger agency that acts as the pool’s sponsor.

Public entity risk pools generally follow the current accounting and financial reporting standards for similar business enterprises. GASB 30 modifies the method for calculating a premium deficiency as follows:

  • A premium deficiency is recognized if the sum of expected claims costs (including incurred but not reported claims) and all expected claim adjustment expenses, expected dividends to policyholders or pool participants and unamortized acquisition costs exceed related unearned premiums.
  • If a premium deficiency exists, unamortized acquisition costs are expensed to the extent of the deficiency. Premium deficiencies in excess of unamortized acquisition costs are recognized as a premium deficiency liability as of the balance sheet date and as a premium deficiency expense. Adjust the premium deficiency liability in future periods as expected costs are incurred. The premium deficiency liability should be zero by the end of the contract period.

GASB 30 requires certain disclosures. Present information in Note 17 on the nature and significance of excess insurance or reinsurance transactions to the pool’s operations, including:

  • The type of coverage
  • Reinsurance premiums ceded
  • Estimated amounts recoverable from excess insurers and reinsurers that reduce the liabilities as of the balance sheet date for unpaid claims and claim adjustment expenses

GASB 30 requires supplementary information relating to revenue and claims development. During the transition period, when the 10 years of information on claims liabilities and claims adjustment expenses may not be available, present all information required only for as many years as that information is available.

Include a table that presents the following:

  1.  
    1. Amount of gross premium (or required contribution)
    2. Revenue and reported investment revenue
    3. Amount of premium (or required contribution) revenue ceded
    4. Amount of net reported premium (or required contribution) revenue (net of excess insurance or reinsurance)
    5. Reported investment revenue for each of the past 10 fiscal years including the latest fiscal year
  2. The amount of reported unallocated claim adjustment expenses and reported other costs for each of the past 10 fiscal years including the latest fiscal year.
  3. The following amounts as originally reported at the end of each of the past 10 accident years (for occurrence-based policies or contracts), report years (for claims-made policies or contracts) or policy years — including the latest year:
    • Total gross amount of incurred claims and allocated claims adjustment expenses (both paid and accrued before the effect of loss assumed by excess insurers or reinsurers)
    • Loss assumed by excess insurers or reinsurers (both paid and accrued)
    • Total net amount of incurred claims and allocated claim adjustment expenses (both paid and accrued)

    The basis of reporting should be used consistently for all years. Limit amounts to provisions for claims resulting from events that triggered coverage under the policy or participation contracts in that year.

  4. The cumulative net amount paid as of the end of the accident year, the report year or policy year (as appropriate) and each succeeding year for each of the incurred claims and allocated expense amounts presented in item #3 above.
  5. The reestimated amount of loss assumed by excess insurers or reinsurers as of the end of the current year for each of the accident years, report years or policy years (as appropriate) presented in item #3 above.
  6. The reestimated amount of net incurred claims and claims adjustment expenses as of the end of each succeeding year for each of the accident years, report years or policy years (as appropriate) presented in item #3 above.
  7. The change in net incurred claims and claims adjustment expenses from the original estimate. The change is based on the difference between the latest reestimated amount presented in item #6 above for each of the accident years, report years or policy years (as appropriate) and the original net incurred claims and claim adjustment amounts reported in item #3 above.

GASB 30 also requires supplementary information to contain a reconciliation of claims liabilities by type of contract, including an analysis of changes in liabilities for claims and claims adjustment expenses for the current fiscal year and the prior year.

GASB Interpretation 4 requires reporting for capitalization contributions made to public entity risk pools with transfer or pooling of risk as follows:

  • If it is probable the contribution will be returned to the agency upon either the dissolution of or the approved withdrawal from the pool, report the capitalization contribution as a deposit. Base the probability of a return of the contribution on the pooling agreement and an evaluation of the pool’s financial capacity to return the contribution. In governmental funds, the fund balance must be classified as restricted, committed or assigned to indicate the deposit is for a specific purpose.
  • For proprietary funds — If it is not probable the contribution will be returned to the agency, the contribution is reported initially as prepaid insurance (an asset) and expenses are allocated and recognized over the periods for which the pool is expected to provide coverage.
  • For governmental funds — If it is not probable the contribution will be returned to the agency, recognize the entire amount of the capitalization contribution as an expenditure in the period of the contribution. Reporting of prepaid insurance is not required. Otherwise, report the contribution initially as prepaid insurance (an asset) and allocate and recognize expenditures over the periods for which the pool is expected to provide coverage.

GASB Interpretation 4 requires agencies to report capitalization contributions made to public entity risk pools (without transfer or pooling of risk) as deposits or reductions of claims liabilities.

Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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