In SAP, reserves for losses and loss adjustment expenses and unearned premiums ceded to reinsurers are reported as reductions of the related reserves.

Question

Options

• ATrue
• BFalse

• A
  79% (15)
• B
  21% (4)

Explanation

Under SAP (Statutory Accounting Principles), ceded reinsurance amounts - including reserves for losses, loss adjustment expenses, and unearned premiums - are netted directly against (reported as reductions of) the related gross reserves on the balance sheet, rather than shown as separate assets. This net presentation reflects the cedant's actual retained exposure and is a defining feature of statutory accounting for insurance companies. Option A is correct because this netting treatment is explicitly required by SAP, distinguishing it from GAAP, where ceded reinsurance recoverables are typically presented as separate assets on the balance sheet. Option B is wrong because it would imply either a gross presentation or a separate asset treatment, neither of which aligns with SAP's approach.

Memory tip: Think "SAP = net, GAAP = gross." Under SAP, ceded reinsurance shrinks your liabilities; under GAAP, it grows your assets - same economic result, opposite balance sheet presentation.

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