The method used to account for insurance and reinsurance contracts that do not transfer insurance risk is referred to as:
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A. B. C. D.D
The method used to account for insurance and reinsurance contracts that do not transfer insurance risk is referred to as "Deposit accounting."
Deposit accounting is a method used to account for insurance and reinsurance contracts that do not transfer insurance risk. These contracts are considered deposit-type contracts because they involve the transfer of funds or assets, rather than the transfer of risk. Under deposit accounting, the insurer or reinsurer records a liability for the amount received as a deposit, and the deposit is amortized over the term of the contract.
Deposit accounting is used when an insurer or reinsurer receives a deposit from a policyholder or ceding company, but does not assume the insurance risk associated with the underlying policy or contract. Examples of contracts that may be accounted for under deposit accounting include loss-sensitive insurance contracts, such as retrospective rating plans, and certain types of reinsurance contracts, such as those that provide for a ceding commission or profit sharing arrangement.
In deposit accounting, the insurer or reinsurer records the deposit received as a liability on its balance sheet. The liability is then amortized over the term of the contract, typically using a straight-line amortization method. The amortization is recognized as revenue in the insurer's or reinsurer's income statement.
In summary, deposit accounting is a method used to account for insurance and reinsurance contracts that do not transfer insurance risk. The deposit received is recorded as a liability, and the liability is then amortized over the term of the contract, with the amortization recognized as revenue in the insurer's or reinsurer's income statement.