In statutory accounting, advance premiums are those premiums that have been received as of the valuation date but are due on or after the next policy anniversary date. This is consistent with the fact that statutory mean reserve formulas assume that premiums are received annually.
Using modern, commercial traditional life valuation systems, GAAP reserves are calculated recognizing the mode of each policy. So it would make sense to me that advance premiums for the GAAP statement would be gross premiums received as of the valuation date that were due after the valuation date. This means that advance premiums differ between statutory and GAAP. Does anyone recognize this difference, or do you use the same advance premium liability for both statutory and GAAP?
When using GAAP reserve calculations based on the actual policy premium mode, there is no need for deferred premium adjustments.
How are Due Premiums treated in GAAP accounting? In order to “recognize revenue when it is earned” and working under the assumption that revenue is earned when it is due based on the agreed upon premium mode, which is also used in the reserve calculation, Gross Due Premiums should be an asset, and the change in Gross Due Premiums is recognized as GAAP revenue.
Do Net Due Premiums get used in GAAP accounting? Does GAAP require a Cost of Collection adjustment?
Providing the source of any authoritative guidance with your response is greatly appreciated.
Using modern, commercial traditional life valuation systems, GAAP reserves are calculated recognizing the mode of each policy. So it would make sense to me that advance premiums for the GAAP statement would be gross premiums received as of the valuation date that were due after the valuation date. This means that advance premiums differ between statutory and GAAP. Does anyone recognize this difference, or do you use the same advance premium liability for both statutory and GAAP?
When using GAAP reserve calculations based on the actual policy premium mode, there is no need for deferred premium adjustments.
How are Due Premiums treated in GAAP accounting? In order to “recognize revenue when it is earned” and working under the assumption that revenue is earned when it is due based on the agreed upon premium mode, which is also used in the reserve calculation, Gross Due Premiums should be an asset, and the change in Gross Due Premiums is recognized as GAAP revenue.
Do Net Due Premiums get used in GAAP accounting? Does GAAP require a Cost of Collection adjustment?
Providing the source of any authoritative guidance with your response is greatly appreciated.
GAAP Premium Accruals for Traditional Life
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