SAP, an insurance company is given an option of recognizing salvage and subrogation upon receipt or accruing the estimated amount of salvage and subrogation related to ultimate claim costs by…

Question

Options

• ATrue
• BFalse

• A
  80% (44)
• B
  20% (11)

Explanation

Under Statutory Accounting Principles (SAP), specifically SSAP No. 65 for property and casualty insurers, companies are explicitly permitted to choose between two acceptable methods for handling salvage and subrogation: recognizing amounts upon actual receipt (cash basis) or accruing estimated amounts by reducing the corresponding loss reserves (accrual basis). This dual-method allowance makes the statement True - SAP intentionally grants insurers this accounting flexibility to reflect the practical realities of timing differences in recovery collections.

Why B (False) is wrong: SAP does not restrict insurers to a single method. Both approaches are codified as acceptable alternatives, so stating that this option does not exist contradicts the actual statutory guidance.

Memory tip: Think of SAP salvage/subrogation as a "cash or accrue" choice - the two C's and A's. If you remember that SAP often allows practical flexibility for insurers compared to GAAP, you'll recall that this optionality exists. The accrual method reduces reserves (matching principle), while the receipt method is simpler but delays recognition - both are valid under SAP.

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