Net liabilities Formula
Can you please explain why we need to subtract "unearned premium recoverable from reinsurance" to obtain net liabilities?
Actually, I am not sure I fully understand what "premium recoverable from reinsurance" means. If the primary buys reinsurance, primary insurer needs to pay a premium to reinsurer. How can the above be "recoverable"?
Comments
Unearned premium recoverable is the portion of reinsurance premium that hasn't been earned yet (i.e. if you bought coverage for a year but are only 6 months into the term, then 50% of the premium is recoverable)
You'd need to subtract it from the liabilities since technically you do not owe the remaining 50% of the premium until it is earned. You have merely prepaid it