What Are the Statutory Accounting Concepts (SAP)?
The Statutory Accounting Concepts (SAP) are a number of accounting regulations prescribed by the use of the National Association of Insurance policy Commissioners (NAIC) for the preparation of an insurance policy corporate’s financial statements. The overarching serve as of SAP is to lend a hand state regulators in monitoring the solvency of insurance policy companies.
Key Takeaways
- The Statutory Accounting Concepts (SAP) are accounting regulations for the preparation of an insurance policy corporate’s financial statements.
- The focus of SAP is to ensure the solvency of insurance policy corporations so that they may be able to meet the tasks to their policyholders.
- State law oversees the implementation of SAP.
- SAP makes a speciality of 3 core values, which may also be conservatism, popularity, and consistency.
Understanding the Statutory Accounting Concepts (SAP)
Filings prepared using the Statutory Accounting Concepts are submitted to explicit particular person state regulatory our our bodies, which check out the solvency levels of insurance policy corporations, so as that they will make sure all tasks are met by the use of policyholders and contract holders, and a few different jail tasks that may stand up. State regulators seek for sufficient capital and surplus in an organization as required by the use of SAP to provide a safety web.
SAP is constructed beneath the framework of usually authorized accounting regulations (GAAP), alternatively SAP’s primary emphasis is recording and maintaining solvency measures, whilst GAAP is principally designed to uphold perfect necessities for the right kind portrayal of an organization’s operations for the good thing about patrons, creditors, and other consumers of monetary statements. Thus, SAP-prepared books are further useful to insurance policy regulators than GAAP-prepared accounts and point of interest principally on the balance sheet observation.
Pillars of the Statutory Accounting Concepts (SAP)
The NAIC advanced SAP to keep on with a couple of primary values: conservatism, popularity, and consistency.
- Conservatism: The serve as is to conduct valuations in a conservative signifies that offers protection to policyholders against any adverse movements of a company’s financial scenario to regulate financial solvency.
- Reputation: The focus is to take account of assets which could be liquid and in a position to meet the corporate’s tasks when they are due. Any assets which could be illiquid or unavailable as a result of another tasks, should no longer be thought to be. The ones assets should be marked against surplus.
- Consistency: SAP should be performed in a relentless method when used to evaluate insurance policy companies so that regulators are in a position to test statements across the board in a vital manner.
Exact World Example
American World Workforce, Inc. (AIG) items “Statutory Financial Knowledge and Restrictions” beneath Understand 20 in its 2019 fourth quarter 10-K consolidated financial statements. The table in Understand 20 shows exact statutory capital and surplus for the insurer’s general-casualty and lifestyles and retirement insurance policy lines of business compared to the minimum required statutory capital and surplus.
On Dec. 31, 2019, for the full insurance policy segment, AIG had more or less $33.7 billion in capital and surplus against the $12.8 billion minimum required amount. For the lifestyles and retirement insurance policy segment, AIG held $14.5 billion in capital and surplus against the $4.6 billion minimum required amount. The ones numbers indicate a comfortable margin of coverage with regards to solvency.
