Is UPR considered as asset or liability?
In wiki ARinstr, under "investment income from insurance operations", it says "Since UPR is a liability, we put it in the + items column". However in educational note "Premium Liabilities", DPAE is defined as "equity in net UPR", amount by which the net UPR plus unearned commissions exceeds the net policy liabilities in connection with UPR. That implies that UPR is an asset, Prem liabilities is liabilities, DPAE/PDR is the difference between them. Am I correct? Then UPR is a liability or an asset?
Comments
The most direct way to answer your question about whether these quantities are assets or liabilities is to look at an insurance company balance sheet. An example of a quarterly return is provided as part of the online readings for Exam 6. If you download that document you can see the following:
You will never have non-zero values for both DPAE and PDR:
So this quantity DPAE/PDR will either be an asset or liability depending on whether the UPR (plus unearned commission) is greater than or less than the policy liabilities in connection with the UPR.
But UPR (and anything else that's "unearned") is always a liability. It kinda seems like UPR should be an asset because it's premium. The "problem" is that it isn't yet earned. The insurer has it in its possession but it really still belongs to the policyholder. When you hold something that belongs to someone else, that's a liability. Of course, the UPR is earned over time (unless the policyholder cancels their policy) so it eventually becomes income in the form of earned premium. Some or all of this income can then flow to the asset side of the balance sheet in the form of cash or other investments or other asset items depending on what management decides to do with it.
Thank you for the explanation.