7 - Odomirok.8-9 - Income Statement

Question 1

Define SAP and GAAP

Answer 1

Both are frameworks of accounting principles/rules for reporting financial transactions and operating results:
==> SAP: prescribed by an insurer’s domiciliary state
==> GAAP: used by all public companies

Question 2

Why do insurers follow different accounting rules versus non-insurers?

Answer 2

==> SAP:
used by regulators
primary concern is solvency
SAP is more conservative (protects policyholders)
==> GAAP:
used by investors/creditors
primary concern is measurement of earnings

Question 3

U/W Income Formula

Answer 3

= EP - current AY loss & LAE - change in prior years’ AY loss & LAE - other U/W expense

Question 4

Net Investment Income Formula

Answer 4

= investment revenue - investment expenses - non-federal TLF

investment revenue excludes realized capital gains and excludes unrealized capital gains

Question 5

Net Investment Gain Formula

Answer 5

= net investment income + (net realized capital gains) - taxes

Question 6

Other Income Formula

Answer 6

= sum(agents’ balances charged off, service fees, aggregate write-ins)

Question 7

Total Net Income Formula

Answer 7

= (U/W income) + (net investment income gain) + (other income) - (dividends to policyholders) - (fed/foreign taxes incurred)

Question 8

The 6 items under other surplus changes are:

Answer 8

+changes in unrealized capital gains
+changes in unrealized foreign exchange
+changes in deferred income tax
-changes in nonadmitted assets
-changes in provision for reinsurance
+cumulative effect of changes in accounting principles

Question 9

Identify the components of ‘direct charges to surplus’

Answer 9

*other surplus charges
*additional capital contributions
*stockholder dividends