Which payments reflect the amount of reinsurance recoverable from reinsurers based upon the amounts paid by the ceding company under reinsured policies?

Question

Options

• Aloss adjustment expense
• Bpremium expense
• Cpayment assessment expense
• DAll of the above

• A
  73% (11)
• B
  13% (2)
• C
  7% (1)
• D
  7% (1)

Explanation

Loss adjustment expenses (LAE) are recoverable from reinsurers because they represent the costs a ceding company incurs when investigating, defending, and settling claims under reinsured policies - reinsurers share proportionally in both the losses and the expenses of resolving those losses. Premium expense (B) is incorrect because it flows in the opposite direction: it is what the ceding company pays to the reinsurer, not what is recovered from them. Payment assessment expense (C) is not a recognized term in reinsurance accounting and is a distractor with no basis in standard practice, eliminating D as well.

Memory tip: Picture LAE as the "settlement work bill" - just as the reinsurer shares the loss itself, they share the cost of the work done to settle it, so those amounts flow back to the ceding company as recoverables.

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