Statutory Accounting Insurers produce financial statement prescribed by NAIC Filed with insurance department of regulators Based on Statutory Accounting Principles More conservative than GAAP SAP ID: 368772
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SAP AccountingSlide2
Statutory Accounting
Insurers produce financial statement prescribed by NAIC
Filed with insurance department of regulatorsBased on Statutory Accounting PrinciplesMore conservative than GAAP
SAP -
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Policyholders’ Surplus
Assets = Liabilities + Policyholders’ Surplus
P/H Surplus similar to shareholder or owners equityValuation of assets and liabilities directly affect its policyholders surplusEmphasis on valuation is liquidation
Policyholders surplus provides a custom insurance insurer can meet its obligations
High quality liquid assets and conservative policyholder liabilities
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Recognition
Revenue recognized when service provided, service provided over policy term
Losses and loss adjustment expense recognized when they occurPolicy acquisition cost recognized when policy issued and matching occurs
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SAP Compared With GAAP
Objective – GAAP treats absences as a going concern; SAP is primarily focused on solvency
Non-admitted and admitted assetsSAP – assets not liquid are nonadmitted
Furniture, equipment, supplies
GAAP – a variety of admitted assets
Bond InvestmentsSAP – valued at an adjusted cost called amortized costs amortized over life of bond shielding value
GAAP – available for sale or trading and reported at market value
Helps prevent large fluctuations in surplus
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GAAP vs. SAP Comparison
Premium Balances
If over 90 days, non admittedReinsurance RecoverableNetted against loss and impaired losses
Provision for Reinsurance
Creates liability for overdue reinsurance recoverable and any recoverable from unauthorized reinsurers
Policy Acquisition Costs
Insurers required to recognize full amount of acquisition costs at inception
Goal would capitalize
Reporting of S&As
Must be reported on same basis some not publically traded account only for equity
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GAAP vs. SAP
Pension Accounting
Contributions for nonvested employers not recognized and not a deductible expenseStatement of Income
GAAP requires included unrealized appreciation foreign currency translation losses
SAP does not
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Components of NAIC Annual Statement
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Principal Elements of Balance Sheet
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Income Statement
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Principal Elements of Capital & Surplus
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Other Schedules
Schedule
D
- Details of investment
Schedule
F
- Reinsurance
Schedule
P
- Loss development
- Provides information to analyze
- Loss reserve levels and loss development
- Accident year basis for 10 years
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