Casualty Actuarial Society (CAS) Exam 6 Practice

Loss contingencies are about potential losses that depend on future events, so what you disclose should both describe what could happen and indicate how big it might be. The required disclosures typically include the nature of the contingency and an estimate of the possible loss, or a statement that such an estimate cannot be made. This pair gives users a clear picture of what is at stake and the scale of exposure.

Other options leave out essential parts of this picture. One focuses only on a carrying amount or on an insurer’s liability, which doesn’t capture the uncertainty or the overall exposure. Another emphasizes only an estimate of a loss or only a specific asset amount, missing the need to describe the contingency itself. The correct approach is to provide both the nature and the estimated range (or the statement that no estimate is possible), which is exactly what the best choice conveys.