How are ceded reinsurance premiums treated under GAAP for income statement purposes?

Ceded reinsurance premiums are treated as negative premiums under GAAP for income statement purposes. This treatment reflects the fact that when an insurer cedes a portion of its risk to a reinsurer, it effectively reduces its own premium income. In other words, the premiums paid to a reinsurer to transfer risk are subtracted from the gross premiums earned by the insurer, which leads to a net premium figure that is more accurately indicative of the insurer's actual premium revenue. This reflects the principle of matching expenses with revenues, ensuring that the financial statements portray a true picture of the insurer's income and expenses.

In contrast, other options, such as treating ceded premiums as positive premiums, would inaccurately inflate the revenue figures, while classifying them as deferred revenue or liabilities does not align with the nature of premium payment transactions, which are considered costs associated with risk management rather than future obligations.