USA GAAP Premium Receivables


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Hey I have lurked here for a while and actually have a question that i'm curious if anyone knows.

Most public property and casualty insurance companies have large premium receivable balances on their balance sheet. I don't really understand where this premium receivable balance comes from since you can't owe money on a standard policy.

Let's say I have a car insurance policy that I pay on the 1st of every month. If I fail to pay my car insurance on may 1st, I don't owe my car insurance company anything, they simply cancel the policy and I don't have coverage. So I don't really understand where the premium receivable balance comes from.

The only thing I can think of is that there are a bunch of people who have paid their car insurance, but the cash hasn't actually hit the insurance companies bank yet? That seems insane though considering the premiums receivable balance is often one of the largest asset line items.

Can someone explain what the premiums receivable balance is made of?
 
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kirby

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You assume all payments are always due on the first. Not so.
 

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