Unearned Premiums

A

The answer is A. Liabilities.

Unearned premiums are premiums that have been collected in advance by the insurer for coverage that has not yet been provided. They represent an obligation on the part of the insurer to provide coverage for the remaining period of the policy. Unearned premiums are therefore considered a liability on the insurer's balance sheet, as the insurer owes a debt to its policyholders for the unexpired portion of the policies.

The pro rata portion of premiums written allocable to unexpired policy periods refers to the portion of the premium that is applicable to the period of time that has not yet elapsed. This is calculated based on the ratio of the unexpired portion of the policy to the total policy period. For example, if a policy has a total period of 12 months and 3 months have already elapsed, the pro rata portion of the premium that is allocable to the unexpired policy period would be 75% (i.e., 9/12).

This pro rata portion of premiums written is recognized as revenue on the income statement for the period in which it is earned, and is recorded as a liability on the balance sheet until the coverage is provided. As the coverage is provided over time, the unearned premium liability is gradually reduced, and the portion of the premium that has been earned is recognized as revenue.

Therefore, the correct answer to the question is A. Liabilities, as unearned premiums represent an obligation of the insurer to provide coverage for the remaining period of the policy, and are recorded as a liability on the balance sheet until the coverage is provided.