SOFA-CFE · Question #166
Adjustments to the deposit related to the unexpired portion of the coverage are recorded as an adjustment to incurred losses.
The correct answer is A. True. Option A is correct because in deposit accounting for insurance and reinsurance contracts, adjustments tied to the unexpired (future) portion of coverage are recorded as an adjustment to incurred losses-reflecting that the obligation pertains to claims that may still arise…
Question
Adjustments to the deposit related to the unexpired portion of the coverage are recorded as an adjustment to incurred losses.
Options
- ATrue
- BFalse
How the community answered
(33 responses)- A79% (26)
- B21% (7)
Explanation
Option A is correct because in deposit accounting for insurance and reinsurance contracts, adjustments tied to the unexpired (future) portion of coverage are recorded as an adjustment to incurred losses-reflecting that the obligation pertains to claims that may still arise under the remaining coverage period, making it a loss-side entry rather than a premium-side entry. In contrast, adjustments tied to the expired portion of coverage are recorded as premium adjustments, since that coverage has already been provided. Option B is incorrect because it would imply these adjustments belong elsewhere (e.g., as a premium adjustment), which misclassifies the nature of the future coverage obligation.
Memory tip: Think "unexpired = unreported future losses." The unexpired portion of coverage is forward-looking-losses can still emerge-so any deposit adjustment for that period belongs on the loss side of the ledger, not the premium side.
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