What unwinds or is reversed in the subsequent year as the ceded premium is earned?

Question

Options

• ALaw of insurance premium relief
• BFinancial growth relief
• CStatutory Surplus Relief
• DSpread risk relief

• A
  2% (1)
• B
  10% (5)
• C
  84% (41)
• D
  4% (2)

Explanation

Statutory Surplus Relief is the correct answer because when an insurer cedes (transfers) premiums to a reinsurer, statutory accounting rules allow the ceding company to reduce its unearned premium reserve, which temporarily boosts statutory surplus. This boost is not permanent - as the ceded premium is earned over the policy period, that surplus relief reverses or "unwinds," restoring the books to their natural state.

Why the distractors are wrong:

• A (Law of insurance premium relief) - Not a recognized accounting or insurance regulatory concept; fabricated terminology.
• B (Financial growth relief) - Similarly invented; no such mechanism exists in statutory or GAAP insurance accounting.
• D (Spread risk relief) - "Spread of risk" is a legitimate reinsurance principle, but "spread risk relief" is not a named accounting mechanism that unwinds with earned premium.

Memory tip: Think of Statutory Surplus Relief as a borrowed boost - ceding premium inflates surplus artificially, and nature collects the debt as the premium earns. "Surplus Soars, then Settles" → SSR (Statutory Surplus Relief).

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