Statutory Accounting Principles

Question 1

purposes of conservatism in SAP (3)

Answer 1

• margin of protection for policyholders
• stability over economic cycles
• prevent sharp fluctuations in surplus

Question 2

hierarchy of accounting rules

Answer 2

Level 1: SSAPs
Level 2: Emerging Accounting Issues Working Group and SAP Working Group
Level 3: NAIC annual statement instructions
Level 4: SAP Preamble and Statement of Concepts
Level 5: non-authoritative GAAP literature

Question 3

essential characteristics of a liability (3)

Answer 3

• present duty to transfer assets on a future date, occurrence of an event, or on demand
• obligates the entity
• event that caused the obligation already occurred

Question 4

joint and several liability arrangements (describe)

Answer 4

more than one entity is obligated; report the amount the entity agreed to pay plus any amount they expect to pay on behalf of co-obligors

Question 5

conditions under which there should be a charge to operations for a loss contingency or asset impairment

Answer 5

• information indicates that it is probable the assets have been impaired or liability incurred AND
• amount of the loss can be reasonably estimated

Question 6

categories of subsequent events

Answer 6

Type I: Recognized - additional evidence of conditions that existed at the balance sheet date
Type II: Nonrecognized - evidence of conditions that arose after the balance sheet date