SOFA-CFE · Question #167
Under SAP, reserves for losses and loss adjustment expenses and unearned premiums ceded to reinsurers are reported as annual disable losses of the related reserves.
The correct answer is B. False. B is correct because under Statutory Accounting Principles (SAP), reserves for losses/LAE and unearned premiums ceded to reinsurers are not reported as deductions from (or offsets against) the related gross reserves. Instead, the gross reserves remain intact on the liability…
Question
Under SAP, reserves for losses and loss adjustment expenses and unearned premiums ceded to reinsurers are reported as annual disable losses of the related reserves.
Options
- ATrue
- BFalse
How the community answered
(26 responses)- A15% (4)
- B85% (22)
Explanation
B is correct because under Statutory Accounting Principles (SAP), reserves for losses/LAE and unearned premiums ceded to reinsurers are not reported as deductions from (or offsets against) the related gross reserves. Instead, the gross reserves remain intact on the liability side of the balance sheet, and the ceded amounts are reported separately as assets - specifically as reinsurance recoverables.
Why A is wrong: Stating this as "True" misrepresents SAP treatment. Netting ceded amounts against gross reserves is more characteristic of GAAP presentation, not SAP. SAP intentionally keeps liabilities gross to give regulators a clearer picture of total obligations.
Memory tip: Think "SAP = Separate and Apart" - under SAP, the gross reserve and the ceded (reinsurance recoverable) asset are kept separate and apart on opposite sides of the balance sheet, never merged or offset against each other.
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