In undertaking a liquidity adequacy test,if the present value of future claims exceeds the unearned premium liability:

Question

Quizplus · Accepted Answer

If the present value of future claims exceeds the unearned premium liability, a further liability should be recorded to 'make up' the deficiency. In addition, an expense should be recorded by initially writing down any related intangible assets. This is because the insurer will not be able to collect the full amount of the premiums due to the excess claims, hence there is a reduction in the value of intangible assets. Therefore, both options B and C are necessary. Option A is incorrect because the difference should be recorded as a liability, not an asset. Option E is incorrect because there must be adjustments made to the financial statements.

In Undertaking a Liquidity Adequacy Test,if the Present Value of Future