SOFA-CFE · Question #169
Under SAP, contingent commissions are accrued over the same period in which the related underwriting results are recognized.
The correct answer is B. False. B is correct because under SAP, contingent commissions are accrued when the contingency is resolved and the obligation becomes determinable - typically after the policy period ends and loss results are known. SAP does not require matching contingent commission expense to the…
Question
Under SAP, contingent commissions are accrued over the same period in which the related underwriting results are recognized.
Options
- ATrue
- BFalse
How the community answered
(30 responses)- A27% (8)
- B73% (22)
Explanation
B is correct because under SAP, contingent commissions are accrued when the contingency is resolved and the obligation becomes determinable - typically after the policy period ends and loss results are known. SAP does not require matching contingent commission expense to the same period as the underwriting results that drive them; instead, recognition follows when the liability is fixed.
A is wrong because it incorrectly implies a matching-principle approach. That reasoning is more aligned with GAAP's accrual matching concept, not SAP's statutory framework, which prioritizes conservative liability recognition over period matching.
Memory tip: Think of SAP as "wait until it's certain." Contingent commissions are contingent - until the contingency resolves, there's nothing definite to accrue. SAP records the liability when it's determinable, not spread across the underwriting period like premiums or losses.
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