Management's discussion and analysis
Impact of Accounting Pronouncemts to be Adopted in the Future
In December 1997, the AICPA issued Statement of Position (SOP) No. 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." The SOP provides guidance for determining when a liability should be recognized for guaranty fund and other insurance-related assessments and on the measurement of that liability. It also provides guidance on when an asset should be recognized for a portion or all of the liability or paid assessment that can be recovered through premium tax offsets of policy surcharges. The SOP is effective for fiscal years beginning after Dec. 31, 1998. We will adopt the provisions of this SOP in the first quarter of 1999. The pretax cumulative effect of such adoption is estimated to be an increase in our liabilities of approximately $32 million for the quarter ended March 31, 1999. The cumulative effect of adopting this accounting statement will be recorded separately on our statement of income, net of taxes.
In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which provides guidance for determining when computer software developed or obtained for internal use should be capitalized. It also provides guidance on the amortization of capitalized costs and the recognition of impairment. The SOP is effective for fiscal years beginning after Dec. 31, 1998. We will adopt the provisions of this SOP in the first quarter of 1999. We currently estimate that the effect of such adoption will be to record software having a value of approximately $19 million as an asset in 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet, and measure those instruments at fair value. SFAS No. 133 is effective for all quarters of fiscal years beginning after June 15, 1999, and prohibits retroactive application to financial statements of prior periods. We intend to implement the provisions of SFAS No. 133 in the first quarter of the year 2000. We cannot at this time reasonably estimate the potential impact of this adoption on our financial position or results of operations for future periods.
In October 1998, the AICPA issued SOP No. 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk," which provides guidance for accounting for such contracts. The SOP specifies that insurance and reinsurance contracts for which the deposit method of accounting is appropriate should be classified in one of four categories, and further specifies the accounting treatment for each of these categories. The SOP is effective for fiscal years beginning after June 15, 1999. We currently intend to implement the provisions of the SOP in the first quarter of the year 2000. We cannot at this time reasonably estimate the potential impact of this adoption on our financial position or results of operations for future periods.
