Requiring the expense items relating to policy issuance to be expensed as a period cost at the time the policy is written is called:

Question

Options

• AStatutory accounting
• BCasualty insurance
• CRefund premiums
• DRecognize expense

• A
  75% (51)
• B
  3% (2)
• C
  16% (11)
• D
  6% (4)

Explanation

Statutory accounting (option A) is the correct term because statutory accounting principles (SAP), which govern insurance company financial reporting for regulatory purposes, require that policy acquisition costs - such as agent commissions and underwriting expenses - be expensed immediately when the policy is written, rather than deferred and matched against future premium income as under GAAP.

Option B (Casualty insurance) is simply a type of insurance product (covering liability and property losses), not an accounting method. Option C (Refund premiums) refers to premium amounts returned to policyholders upon cancellation, which is unrelated to expense recognition timing. Option D (Recognize expense) is a generic accounting concept that describes the act of recording an expense, not the specific rule or system that mandates when to do so.

Memory tip: Think "Statutory = Strict and Speedy" - regulators require insurance companies to record expenses immediately (conservatively) to ensure the insurer's financial health is never overstated, which protects policyholders.

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