Accounting treatment of structured settlements in which the insurer is the owner and payee?

Prepare for the CAS Exam 6 with detailed study materials. Use flashcards and multiple-choice questions, each with hints and explanations, to get exam-ready!

Multiple Choice

Accounting treatment of structured settlements in which the insurer is the owner and payee?

When a structured settlement is funded by an annuity owned by the insurer, the annuity is treated as an asset that is separate from the invested asset portfolio and is measured at the present value of the remaining payments. This reflects that the contract creates a dedicated, future stream of cash flows to satisfy a known obligation, so it isn’t just another market investment. Classifying it as “other than invested assets” and valuing it at present value aligns the asset with the funded settlement and the timing of those payments. It’s not recorded as miscellaneous income, and it doesn’t require increasing loss reserves—the annuity funds the future payments, while the liability for the claim is addressed by recognizing the dedicated funding asset.

When a structured settlement is funded by an annuity owned by the insurer, the annuity is treated as an asset that is separate from the invested asset portfolio and is measured at the present value of the remaining payments. This reflects that the contract creates a dedicated, future stream of cash flows to satisfy a known obligation, so it isn’t just another market investment. Classifying it as “other than invested assets” and valuing it at present value aligns the asset with the funded settlement and the timing of those payments. It’s not recorded as miscellaneous income, and it doesn’t require increasing loss reserves—the annuity funds the future payments, while the liability for the claim is addressed by recognizing the dedicated funding asset.

More practice questions