AIAF 4: PC Premium Accounting Questions And Answers Already Graded A+

The method most commonly used by PC insurers to recognize premium is - Answer--deferralmatching Deferral-Matching: Any prem charged on a policy before its effective date will be: - Answer--Deferred and not recognized as written premium until the effective date Deferral-Matching: Prem rev for a particular policy during a particular period equals: - Answer--writ prem during the period + beg UEP less the ending unearned prem liab Deferral-Matching: Actual Premium billing process - Answer--If the billed prem is received before the effective date, that amt is treated as a deposit until the effective date -If it is received after the effective date: A prem receivables acct is established once the prem is booked as written Deferral-Matching: How the two different billing methods affect commissions - Answer--Usually, the amt due from agents is net of commission. When an insurer bills a PH directly, it collects the full amt, including commissions and addresses pymt of the agents commissions separately SAP vs GAAP treatment of billed premium that is subsequently determined to be uncollectible - Answer--SAP: treats uncollectible as negative other income -GAAP: may be accounted as underwriting exps Deferral-Matching: When ultimate prem rev for a policy/underwriting year is the focus - Answer-- UEP is not recognized -Ultimate prem rev for that policy/underwriting yr equals **total written prem to date** with the possible adj for writ prem amts expected in the future for that policy/underwriting yr Exs of future adjs: late bookings, cancellations, endorsements Asset-Liab Approach to premium - Answer--Rev is recog'd up front once the insurer gains control of the asset resulting from the rev. This means there is NO UEP -Instead, other liabs are established for losses expected for the unexpired portion-Deposits still established for anything received before the effective date -When full prem is recog'd at date of sale or date of prem receipt before effective date, then NO deposit liab. Instead, insurer makes loss liabs for future cash outflows even before the coverage become effective Deposit Premium - Answer--The amt a PH pays at the beginning of a period, pending the determination of the actual prem owed -Can also be used for reinsurance when the final prem is a function of the subject busn during treaty effective period Examples of Estimated Premiums - Answer--Commercial liab policy for which the prem is a function of the insured's busn sales during the period -Reinsurance treaty with a prem that is a function of the final subject prem Audit Premiums - Answer--Can occur during the term or after, used to determine the actual final exposure of the contract Endorsement/Cancellation Premiums - Answer--Endorsements can create positive or negative prem -Common example: When a new car is purchased, with the existing auto policy endorsed to reflect the purchase of the new car in addition to or in place of the cars already covered by the in-force policy Reinstatement Premiums - Answer--Premium that applies to reins contracts or primary policies to reinstate the original policy limit after it has been exhausted by the covered event in order to cover another possible event under the reins -Many cats or per-event-excess of loss reins treaties require reinstatement prem Retrospective Premium Adjs - Answer--Some policies' final prem is determined based on losses incurred under the contract -Results in an initial prem followed by adj prem entries based on the covered losses -These adjs can continue for yrs after the original term has expired