Ceded reinsurance - SAP prospective calculation

For SAP, do we subtract the prepaid reinsurance premium from the unearned premium reserve in the GAAP calculation because we assume that the premium is earned when incurred rather than being earned throughout the contract period?

Comments

  • Your question is valid. It's not clear at all why prepaid reins prem should not be subject to earning as well. Odomirok does not shed any light on this, and we don't know of any other syllabus source that does. It may be that there is an extraneous accounting source that explains this, or it may simply be wrong. Nevertheless, it's fair to assume points will be given to answers that replicate this application in the exam.

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