Actuarial Notes

Liabilities, Contingencies and Impairments of Assets

By National Association of Insurance Commissioners · 2025 · SSAP No. 5R

Study guide: Exam 6U

Statement of Statutory Accounting Principles No. 5R of the NAIC's Accounting Practices and Procedures Manual. It defines and establishes statutory accounting principles for liabilities, contingencies and impairments of assets, covering the definition of a liability, joint and several liabilities, loss, tax and gain contingencies, guarantees and financial instruments with characteristics of both liabilities and equity.

On the syllabus

  • Exam 6U — objectives C1–C2; NAIC Accounting Practices and Procedures Manual, 2025, SSAP No. 5R, paragraphs 1-13, 31-34 and 38-39, available in Appendix IV of the COPLFR P&C Practice Note (as the content outline states it)

Scope of Statement

  • The statement defines and establishes statutory accounting principles for liabilities, contingencies and impairments of assets.

Summary Conclusion

  • Liabilities
    • A liability is a present obligation of an entity to transfer an economic benefit, and it is recorded on the financial statements when incurred; liabilities arising from policyholder obligations (reported claims and reserves for incurred but not reported claims) are included.
    • Estimates of losses made with appropriate actuarial methodologies (for example loss reserves) meet the definition of liabilities and are not loss contingencies.
  • Joint and Several Liabilities
    • An arrangement whose total obligation is fixed at the reporting date is measured as the amount agreed with co-obligors plus any additional amount the entity expects to pay on their behalf; the midpoint of management's range is used when no amount is a better estimate.
  • Loss Contingencies or Impairments of Assets
    • A future event is probable if likely to occur, reasonably possible if more than remote but less than probable, and remote if the chance is slight.
    • An estimated loss is charged to operations if it is probable that an asset has been impaired or a liability incurred and the amount of the loss can be reasonably estimated.
    • Where the estimate is a range with no better estimate, the midpoint (mean) of management's range is accrued; a judgment rendered against the entity is presumed to meet both conditions.
  • Tax Contingencies
    • Tax loss contingencies are computed under this statement with modifications: "probable" is replaced by "more likely than not (a likelihood of more than 50%)" for federal and foreign income tax.
  • Gain Contingencies
    • Gain contingencies are not recognized in the financial statements; a gain realized after the balance sheet date is disclosed in the notes.
  • Guarantees
  • Financial Instruments with Characteristics of Both Liabilities and Equity
  • Disclosures
    • Disclosure of a loss contingency is required when only one of the two recording conditions is met or when exposure exceeds the amount accrued, if there is at least a reasonable possibility of a loss.
    • Certain guarantee-type loss contingencies are disclosed even if the possibility of loss is remote.
    • Financial statements disclose the nature of any gain contingency, taking care to avoid misleading implications about the likelihood of realization.
  • Relevant Literature
  • Effective Date and Transition

References

  • Relevant Issue Papers

Related readings

  • Statements of Actuarial Opinion on Property and Casualty Loss Reserves Practice Note (COPLFR - 2024) — its Appendix IV reproduces this statement, as the content outline notes

Sources

  • Property and Casualty Practice Note 2025 (American Academy of Actuaries, COPLFR) — the text of SSAP No. 5R as reproduced in its Appendix IV (pp. 5-1 to 5-12, marked © 1999-2025 NAIC): status table, contents, paragraphs 1-47 and references (348 pages, sha256 299cb328818f8669014180a0e1c8543121996b2f9c94f83ea0d8f131d3afe4c3); the NAIC's own Accounting Practices and Procedures Manual is sold by the NAIC and was not read, and the reproduction's own title line prints "No. 5" where the text refers to SSAP No. 5R
  • CAS Exam 6U Content Outline, Fall 2026 — the citation (Accounting Practices and Procedures Manual, 2025), the assigned paragraphs and the note that the material is in Appendix IV of the COPLFR practice note