In a public-entity risk pool, if an annuity contract is purchased for a claimant, how should it be reported?

In a public-entity risk pool, the reporting of an annuity contract purchased for a claimant is guided by the principle that the liability is generally settled through the annuity contract. When an annuity contract is established to cover future claim payments, the risk pool is effectively transferring the obligation to a third-party insurer or financial institution, which means that the liability for the claim is considered eliminated.

Therefore, the annuity represents an arrangement that guarantees future payments to the claimant, and since the liability has been externalized, there is no longer a need to report it within the financial statements of the risk pool. This leads to the conclusion that both the liability associated with the claim and the annuity itself should not be reflected on the financial statements. The annuity contract is thus not reported as an asset since it essentially serves as a means of settling a previously recognized liability. This conceptual framework supports the position that neither the liability nor the annuity should be reported in the financial statements of the risk pool.