What is true about uncollectible reinsurance?

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

What is true about uncollectible reinsurance?

Uncollectible reinsurance is handled like a bad debt. Reinsurance recoverables are assets that reflect expected payments from reinsurers. When it becomes clear a reinsurer will not pay, the unrecoverable amount is written off as an expense, removing the asset from the balance sheet and reducing net income for the period. It isn’t treated as a reserve (which would imply future potential recoveries) and it isn’t a revenue item.

Uncollectible reinsurance is handled like a bad debt. Reinsurance recoverables are assets that reflect expected payments from reinsurers. When it becomes clear a reinsurer will not pay, the unrecoverable amount is written off as an expense, removing the asset from the balance sheet and reducing net income for the period. It isn’t treated as a reserve (which would imply future potential recoveries) and it isn’t a revenue item.

More practice questions