GAAP vs SAP

Question 1

Difference between SAP/GAAP treatment of retroactive reinsurance.

Answer 1

SAP: Undiscounted ceded reserves are recorded as a negative write-in liability. Any gain to the ceding company (excess of the negative write-in liability over the consideration paid) is treated as write-in gain in other income and restricted as special surplus until the actual paid reinsurance recovery is in excess of the consideration paid.

GAAP: Requires ceded reserves to be recorded as a reinsurance asset. Any gain is deferred, thereby resulting in no immediate income or surplus benefit. The deferred gain is amortized using the interest method if the timing of the payments under the reinsurance treaty are reasonably estimable.