In novations, the amount paid by the assuming insurer reduces which item?

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Multiple Choice

In novations, the amount paid by the assuming insurer reduces which item?

Explanation:
In a novation, the policy is transferred from the ceding insurer to the assuming insurer, with the assuming insurer paying consideration for taking on the risk. Once the transfer occurs, that policy is no longer written by the ceding company, so the premium tied to that policy is removed from the ceding company’s records. The payment from the assuming insurer is treated as compensation for the transfer and reduces the ceding company’s written premium (the amount of premium that was previously booked as written on that policy). The other items don’t move for this reason: loss reserves relate to claims liabilities, cash changes on the paying side, and unearned premium is not the primary effect reflected in this standard novation entry.

In a novation, the policy is transferred from the ceding insurer to the assuming insurer, with the assuming insurer paying consideration for taking on the risk. Once the transfer occurs, that policy is no longer written by the ceding company, so the premium tied to that policy is removed from the ceding company’s records. The payment from the assuming insurer is treated as compensation for the transfer and reduces the ceding company’s written premium (the amount of premium that was previously booked as written on that policy). The other items don’t move for this reason: loss reserves relate to claims liabilities, cash changes on the paying side, and unearned premium is not the primary effect reflected in this standard novation entry.

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