In GAAP, retroactive reinsurance treatment is described by which statement?

• A. The ceded reserves are treated as a reinsurance recoverable asset
• B. Any gain is deferred, so there is no immediate income or surplus benefit
• C. This gain is amortized over time
• D. All of the above

Answer: (D)

GAAP treatment for retroactive reinsurance involves three related ideas. First, the reserves ceded to the reinsurer are shown as a reinsurance recoverable asset rather than simply reducing the ceding company’s liabilities. This reflects the expectation of future recoveries from the reinsurer for losses already settled. Second, any gain from the retroactive arrangement is not recognized immediately in income or surplus; it is deferred to avoid inflating current earnings. Third, that deferred gain is amortized over time, recognizing the benefit gradually as the reinsurance arrangement provides protection over future periods. Because all of these aspects describe how GAAP handles retroactive reinsurance, the combined description is correct.