Contingency liability under policies with mutual insurance companies;

              Statements on Auditing
Procedure
•
Issued by the Committee on Auditing Procedure, American Institute of Accountants, 13 East 41st Street, New York, N. Y.
Copyright 1941 by American Institute of Accountants
No. 7
March 1941
Contingent Liability under Policies with Mutual Insurance Companies
AQUESTION has been directed to the committee on auditing pro-cedure as to whether it is customary or necessary for a company which carries insurance with mutual insurance companies to indicate on its balance-sheet under the heading of contingent liabilities or otherwise that the company is subject to assessment under the insur-ance policies.
In an endeavor to ascertain the nature and extent of the contingency and the frequency with which losses have been sustained in the past, inquiries have been made of American Mutual Alliance, an associa-tion of mutual insurance groups whose members operate in the fire-and casualty-insurance field.
Information from this source indicates that, except for farm com-panies which usually operate in a strictly limited territory and on an assessment basis after losses are determined, companies with which the independent public accountant seldom comes into contact, there are very few mutual insurance companies in the general field which carry an unlimited-assessment provision in their policies. It is also stated that the vast majority of mutual fire and casualty companies which operate on a state-wide or national basis issue either policies under which there is no liability for assessment, commonly referred to as nonassessable policies, or limited-liability policies under which pro-vision for an assessment of one additional premium is made. A few of these companies issue policies carrying unlimited liability. A greater number of others limit the assessment liability to from two to five times the annual premium or deposit. Occasionally the liability is limited to a small percentage of the face amount of insurance carried.
American Mutual Alliance has furnished a tabulation of special assessments levied by mutual insurance companies operating in the field referred to above which were still active at the close of 1940. This tabulation shows that only ten companies in the general class have levied assessments since 1900, and the highest of these assessments appears to have been equal to one year's premium.
The committee took into consideration the fact that deposits are
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