What begins with gross premiums written and are reduced by return premiums and premiums paid for reinsurance?

Question

Options

• APremiums unearned
• BPremiums earned
• CDeposited premiums
• DReinsured premiums

• A
  4% (2)
• B
  77% (36)
• C
  13% (6)
• D
  6% (3)

Explanation

Premiums earned (B) is correct because the calculation flows from gross premiums written, minus return premiums (cancellations/endorsements), minus ceded reinsurance premiums, and then adjusted for changes in unearned premiums - producing the net premiums earned figure recognized as revenue on the income statement.

Why the distractors are wrong:

• A. Premiums unearned are a balance sheet liability representing the unexpired portion of written premiums - they result from the earned premium calculation, not the starting point of this one.
• C. Deposited premiums is not a standard insurance accounting category; it's a distractor using plausible-sounding terminology.
• D. Reinsured premiums is also non-standard; "ceded premiums" is the correct term for what's paid to reinsurers, and it's a deduction in this formula, not the end result.

Memory tip: Think of the acronym G → R → R → E (Gross written, minus Returns, minus Reinsurance, equals Earned). "Earned" is the revenue figure after stripping out what you gave back and what you handed off to reinsurers.

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