Alteration vs. Conservation Defined

[swarmee]

Yes, it seems PSA self-insures for their Grade Guarantee rather than pays an insurance company for protection. In their most recent quarterly stockholders report, they stated they increased their reserve fund to cover a predicted increase of grade guarantee liabilities.

Service Warranties
We generally issue an authenticity or grading warranty with every coin and trading card authenticated or graded by us. Under the terms of the warranty, in general, if a coin or trading card that was authenticated or graded by us later receives a lower grade upon resubmission to us for grading, or is found not to be authentic, based on our opinion, we are obligated under our warranty either to purchase the coin or trading card at
the current market value at the originally assigned grade or, instead, at the
customer’s option, to pay the difference in the current market value of the item between its original assigned grade and its lower grade. We accrue for estimated warranty costs based on historical claims experience, and we monitor the adequacy of the warranty reserves on an ongoing basis. If warranty claims were to increase in relation to historical trends and experience, we would increase the warranty reserves and incur additional charges that would have the effect of reducing income in those periods during which the warranty reserve is increased. See Item 7: “MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Critical Accounting Policies: Grading Warranty Costs”, and Item 8: Consolidated Financial Statements -Note 7 of this report for more information regarding our warranty reserves. As discussed above, before returning an authenticated or graded coin or trading card to our customer, we place the coin or trading card in a tamper-evident, clear plastic holder that encapsulates a label identifying the collectible as having been authenticated and graded by us. The warranty is voided if the plastic holder has been broken or damaged or shows signs of tampering.
We do not provide a warranty with respect to our opinions regarding the authenticity or quality of autographs or memorabilia.

We have no insurance coverage for claims made under these warranties, and therefore we maintain reserves for such
warranty claims based on historical experience. However, there is no assurance that these warranty reserves will prove to be
adequate, and as we expand our services in overseas markets, we may incur higher warranty claims than we have experienced in
the past. If our warranty reserves prove to be inadequate, our gross margin and operating results could be harmed. As a result, we
monitor the adequacy of our warranty reserves on an ongoing basis.

Due to the higher level of warranty payment in fiscal 2018, warranty expense recognized was $764,000 in fiscal 2018 as
compared to $302,000, and ($145,000) in fiscals, 2017 and 2016, respectively. Our warranty reserves were $862,000 and $834,000
at June 30, 2018 and 2017, respectively.

http://investors.collectors.com/stat...3-6a45441cf111

Will it bankrupt the company? Probably not. But it may hurt their stock price and increase costs of grading in the future to cover the losses.