When policy periods expire, the premiums written are earned and are recognized as:

In accordance with both Statutory Accounting Principles (SAP) and Generally Accepted Accounting Principles (GAAP) for insurers, premiums are recognized as revenue as they are earned. When a policy is written, the premium is initially recorded as a liability known as the "unearned premium reserve." As the insurance company provides coverage over the policy period, it "earns" a pro-rata portion of the premium. This earned portion is then reclassified from a liability to revenue on the insurer's income statement. This process aligns with the fundamental revenue recognition principle, matching the recognition of income with the provision of the service (i.e., insurance protection).

A. Liabilities: Unearned premiums are liabilities, representing the insurer's obligation to provide future coverage. Earned premiums are the fulfillment of that obligation, thus becoming revenue.

B. Expenses: Expenses are costs incurred to generate revenue, such as claims paid (losses) and underwriting expenses. Premiums are the primary source of income, not a cost.

D. None of the above: This is incorrect as option C accurately describes the accounting treatment of earned premiums.

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1. NAIC

Statement of Statutory Accounting Principles (SSAP) No. 53—Property and Casualty Contracts–Premiums.

Reference: Paragraph 4 states

"Premiums shall be recognized as revenue over the period of the contract in proportion to the amount of insurance protection provided. This recognition is referred to as earned premium."

2. Skwire

D.

& Wilson

D. (2016). Financial Reporting of the U.S. Insurance Industry (2nd ed.). Casualty Actuarial Society.

Reference: Chapter 3

"The P&C Insurance Company Income Statement

" Section 3.2.1

"Premiums Earned." The text explains

"The income statement shows premiums earned

not premiums written. Premiums are earned as the insurer provides services

i.e.

as the policy period expires... The change in the unearned premium reserve links written and earned premiums."

3. Trieschmann

J. S.

Gustavson

S. G.

& Hoyt

R. E. (2001). Risk Management and Insurance (11th ed.). South-Western College Publishing.

Reference: Chapter 6

"Insurance Company Operations

" in the section on the "Income and Expense Statement

" it is detailed that "earned premiums are considered revenues for the period" and represent the portion of written premiums for which insurance protection has been provided.