Registered Insurance Brokers of Ontario (RIBO) Practice Exam

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What is not considered a liability when calculating the net worth of an insurance company?

  1. Unearned premiums

  2. Investments

  3. Earned premiums

  4. Claims payable

The correct answer is: Earned premiums

Earned premiums are amounts that the insurance company has already recognized as income for products that have been delivered or services that have been performed. Since they represent income that the business has already earned and are not an obligation to pay out, they do not qualify as a liability on the company's balance sheet. In contrast, unearned premiums are considered liabilities because they represent premiums received for insurance coverage that has not yet been provided and thus reflects an obligation for the insurer to deliver the coverage in the future. Investments, while crucial for an insurance company's assets, do not fall under liabilities; rather, they are seen as resources that can generate income or support future claims. Claims payable are indeed liabilities, as they represent amounts the company is obliged to pay out for claims that have been reported by policyholders.

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