U-Haul 2005 Annual Report Download - page 26

25 I AMERCO ANNUAL REPORT
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Insurance฀Reserves
Liabilities฀for฀life฀insurance฀and฀certain฀annuity฀policies฀
are฀established฀to฀meet฀the฀estimated฀future฀obligations฀
of฀ policies฀ in฀ force,฀ and฀ are฀ based฀ on฀ mortality฀ and฀
withdrawal฀assumptions฀from฀recognized฀actuarial฀tables฀
which฀contain฀margins฀for฀adverse฀deviation.฀Liabilities฀
for฀annuity฀contracts฀consist฀of฀contract฀account฀balances฀
that฀accrue฀to฀the฀benefit฀of฀the฀policyholders,฀excluding฀
surrender฀ values.฀ Liabilities฀ for฀ health,฀ disability฀ and฀
other฀policies฀represents฀estimates฀of฀payments฀to฀be฀made฀
on฀insurance฀claims฀for฀reported฀losses฀and฀estimates฀of฀
losses฀incurred,฀but฀not฀yet฀reported.฀Insurance฀reserves฀
for฀ RepWest฀ and฀ U-Haul฀ International,฀ Inc.฀ take฀ into฀
account฀ losses฀ incurred฀ based฀ upon฀ actuarial฀ estimates฀
in฀which฀third฀party฀actuaries฀perform฀a฀separate฀analysis฀
of฀ our฀ reserves฀ on฀ an฀ annual฀ basis฀ for฀ reasonableness.฀
These฀ estimates฀ are฀ based฀ on฀ past฀ claims฀ experience฀
and฀current฀claim฀trends฀as฀well฀as฀social฀and฀economic฀
conditions฀such฀as฀changes฀in฀legal฀theories฀and฀inflation.฀
Due฀to฀the฀nature฀of฀underlying฀risks฀and฀the฀high฀degree฀
of฀ uncertainty฀ associated฀ with฀ the฀ determination฀ of฀
the฀ liability฀ for฀ future฀ policy฀ benefits฀ and฀ claims,฀ the฀
amounts฀to฀be฀ultimately฀paid฀to฀settle฀liabilities฀cannot฀
be฀precisely฀determined฀and฀may฀vary฀significantly฀from฀
the฀estimated฀liability.
A฀ consequence฀ of฀ the฀ long฀ tail฀ nature฀ of฀ the฀ assumed฀
reinsurance฀ and฀ the฀ excess฀ workers฀ compensation฀ lines฀
of฀ insurance฀ that฀ were฀ written฀ by฀ Republic฀ Western฀ is฀
that฀ it฀ takes฀ a฀ number฀ of฀ years฀ for฀ claims฀ to฀ be฀ fully฀
reported฀ and฀ finally฀ settled.฀ Also,฀ the฀ severity฀ of฀ the฀
commercial฀transportation฀and฀the฀commercial฀multiple฀
peril฀programs฀can฀fluctuate฀unexpectedly.฀During฀2004฀
and฀ 2003฀ these฀ lines฀ experienced฀ an฀ increase฀ in฀ claim฀
severity฀ that฀ was฀ materially฀ different฀ than฀ the฀ previous฀
year’s฀actuarial฀estimations.
Investments
For฀ investments฀ accounted฀ for฀ under฀ SFAS฀ No.฀ 115,฀
in฀ determining฀ if฀ and฀ when฀ a฀ decline฀ in฀ market฀ value฀
below฀ amortized฀ cost฀ is฀ other฀ than฀ temporary,฀ quoted฀
market฀ prices,฀ dealer฀ quotes฀ or฀ discounted฀ cash฀ flows฀
are฀reviewed.฀Other-than-temporary฀declines฀in฀value฀are฀
recognized฀in฀the฀current฀period฀operating฀results฀to฀the฀
extent฀of฀the฀decline.
Recent฀Accounting฀Pronouncements
On฀ June฀ 1,฀ 2005,฀ the฀ Financial฀ Accounting฀ Standards฀
Board฀ (“FASB”)฀ issued฀ Statement฀ of฀ Financial฀
Accounting฀ Standards฀ No.฀ 154,฀ “Accounting฀ Changes฀
and฀Error฀Corrections฀(“SFAS฀No.฀154”),฀a฀replacement฀
of฀ APB฀ Opinion฀ No.฀ 20,฀ “Accounting฀ Changes”฀ and฀
FASB฀Statement฀No.฀3,฀“Reporting฀Accounting฀Changes฀
in฀Interim฀Financial฀Statements.”฀SFAS฀No.฀154฀applies฀
to฀ all฀ voluntary฀ changes฀ in฀ accounting฀ principle฀ and฀
changes฀the฀requirements฀for฀accounting฀for฀and฀reporting฀
a฀change฀in฀accounting฀principle.฀SFAS฀No.฀154฀requires฀
the฀ retrospective฀ application฀ to฀ prior฀ periods’฀ financial฀
statements฀ of฀the฀ direct฀ effect฀of฀a฀ voluntary฀ change฀in฀
accounting฀principle฀unless฀it฀is฀impracticable.฀APB฀No.฀
20฀ required฀ that฀ most฀ voluntary฀ changes฀ in฀ accounting฀
principle฀be฀recognized฀by฀including฀in฀net฀income฀of฀the฀
period฀ of฀ the฀ change฀ the฀ cumulative฀ effect฀ of฀ changing฀
to฀ the฀ new฀ accounting฀ principle.฀ Unless฀ early฀ adoption฀
is฀ elected,฀ SFAS฀ No.฀ 154฀ is฀ effective฀ for฀ fiscal฀ years฀
beginning฀ after฀ December฀ 15,฀ 2005.฀ Early฀ adoption฀ is฀
permitted฀for฀fiscal฀ years฀beginning฀after฀June฀1,฀2005.฀
SFAS฀No.฀154฀does฀not฀change฀the฀transition฀provisions฀of฀
any฀existing฀accounting฀pronouncements,฀including฀those฀
that฀are฀in฀a฀transition฀phase฀as฀of฀the฀effective฀date฀of฀this฀฀
statement.฀We฀do฀not฀believe฀that฀the฀adoption฀of฀SFAS฀
No.฀ 154฀ will฀ have฀ a฀ material฀ effect฀ on฀ our฀ results฀ of฀
operations฀or฀financial฀position.
On฀ December฀ 16,฀ 2004,฀ the฀ FASB฀ issued฀ Statement฀
of฀ Financial฀ Accounting฀ Standards฀ No.฀ 123฀ (revised฀
2004),฀ “Share-Based฀ Payment”฀ (“SFAS฀ No.฀ 123R”).฀
SFAS฀ No.฀ 123R฀ is฀ a฀ revision฀ of฀ FASB฀ Statement฀ No.฀
123,฀ “Accounting฀ for฀ Stock-Based฀ Compensation”฀ and฀
supersedes฀APB฀Opinion฀No.฀25,฀“Accounting฀for฀Stock฀
Issued฀ to฀ Employees,”฀ and฀ its฀ related฀ implementation฀
guidance.฀ SFAS฀ No.฀ 123R฀ requires฀ companies฀ to฀
measure฀ and฀ recognize฀ compensation฀ expense฀ for฀ all฀฀
stock-based฀payments฀at฀fair฀value.฀Stock-based฀payments฀
include฀stock฀option฀grants.฀SFAS฀No.฀123R฀is฀effective฀for฀
public฀companies฀for฀annual฀periods฀beginning฀after฀June฀
15,฀ 2005.฀ Early฀ adoption฀ is฀ encouraged฀ and฀ retroactive฀
application฀ of฀ the฀ provisions฀ of฀ SFAS฀ No.฀ 123R฀ to฀ the฀
beginning฀of฀the฀fiscal฀year฀that฀includes฀the฀effective฀date฀
is฀ permitted,฀ but฀not฀required.฀We฀ do฀ not฀believe฀that฀the฀
adoption฀of฀SFAS฀No.฀123R฀will฀have฀a฀material฀effect฀on฀
our฀results฀of฀operations฀or฀financial฀position.
On฀ November฀ 24,฀ 2004,฀ the฀ FASB฀ issued฀ Statement฀ of฀
Financial฀Accounting฀Standards฀No.฀151฀“Inventory฀Costs฀
—฀ an฀ amendment฀ of฀ ARB฀ No.฀ 43,฀ Chapter฀ 4”฀ (“SFAS฀
No.฀151”)฀effective฀for฀fiscal฀years฀beginning฀after฀June฀
15,฀2005.฀This฀ Statement฀amends฀the฀ guidance฀in฀ ARB฀
No.฀ 43,฀ Chapter฀ 4,฀ “Inventory฀ Pricing,”฀ to฀ clarify฀ the฀
accounting฀for฀abnormal฀amounts฀of฀idle฀facility฀expense,฀
freight,฀ handling฀ costs,฀ and฀ wasted฀ material฀ (spoilage).฀
SFAS฀ No.฀ 151฀ requires฀ that฀ those฀ items฀ be฀ recognized฀
as฀ current-period฀ charges.฀ In฀ addition,฀ this฀ Statement฀
requires฀that฀allocation฀of฀fixed฀production฀overheads฀to฀
the฀costs฀of฀conversion฀be฀based฀on฀the฀normal฀capacity฀
of฀ the฀ production฀ facilities.฀ We฀ do฀ not฀ believe฀ that฀ the฀
adoption฀of฀SFAS฀No.฀151฀will฀have฀a฀material฀effect฀on฀
our฀results฀of฀operations฀or฀financial฀position.