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

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In SAP, retroactive reinsurance can create an immediate accounting benefit when the upfront consideration paid for the contract is smaller than the negative write-in liability recorded for ceded reserves. The negative write-in liability reflects the amount of future losses that the ceding company has effectively transferred to the retrocession partner. If you pay less for the retroactive agreement than this existing liability, you unlock a gain equal to the difference. This gain is recognized in the current period as a write-in income item (under other income). The portion of the benefit that hasn’t yet been realized through cash recoveries is kept in a special surplus account, and it remains there until the actual paid reinsurance recoveries exceed the consideration paid. Until that point, it is treated as surplus rather than regular income. This explains why the described treatment is correct: it captures both the immediate write-in gain and the mechanism for deferring a portion of the benefit as special surplus until recoveries surpass cost. The other statements don’t fit because they either oversimplify the effect on reserves, misstate the impact on Schedule P, or claim that all retroactive gains are deferred, which isn’t the specific SAP treatment described here.