GAAP vs. SAP

Question 1

SAP vs. GAAP: DAC

Answer 1

SAP: no deferring of expenses
GAAP: DAC asset to defer recognition of expenses to match recognition of EP

Question 2

SAP vs. GAAP: Nonadmitted Assets

Answer 2

SAP: Assets that are not highly liquid
GAAP: No such category

Question 3

SAP vs. GAAP: DTAs

Answer 3

SAP: Strict admissibility test
GAAP: Fully recognizes DTA

Question 4

SAP vs. GAAP: Invested Assets

Answer 4

SAP: High class bonds, redeemable preferred stocks - amortized cost; lower rated bonds and preferred stocks -- min (fair value, amortized); common stock -- fair value;
GAAP: AFS (fair value), HTM (amortized cost), HFT (fair value)

Question 5

Available for sale (AFS)

Answer 5

Purchased with intention to sell before maturity, but after a year; held at market value

Question 6

Held to maturity (HTM)

Answer 6

Intent and ability to hold until maturity; held at amortized cost

Question 7

Held for trading (HFT)

Answer 7

Purchased with intention of selling within hours or days; held at market value

Question 8

SAP vs. GAAP: Prospective reinsurance

Answer 8

SAP: Reserves net of anticipated recoveries
GAAP: establishes an asset to recognize ceded reinsurance recoverables

Question 9

SAP vs. GAAP: Retroactive reinsurance

Answer 9

SAP: ceded reserves are negative write-in liabilities
GAAP: ceded reserves are treated as reinsurance recoverable asset

Question 10

SAP vs. GAAP: Structured settlements

Answer 10

SAP: Purchase price of annuity is paid loss, claim is closed
GAAP: If release not signed, insurer is contingently liable – treated like reinsurance

Question 11

SAP vs. GAAP: Anticipated SalSub

Answer 11

SAP: Option to record reserves gross or net of anticipated SalSub
GAAP: Insurer must subtract amounts

Question 12

SAP vs. GAAP: Reserve discounting

Answer 12

SAP: Rarely, only WC – claims with fixed and reasonably determinable payment patterns
GAAP: Allows SAP discount, but also alternative rate if reasonable

Question 13

SAP vs. GAAP: Goodwill

Answer 13

SAP: Difference between purchase price and statutory surplus
GAAP: Difference between purchase price and fair value of net assets

Question 14

P-GAAP

Answer 14

Purchase GAAP; when one company buys another, value of assets/liabilities need to be accounted for at fair value

Question 15

Fair value of Loss/LAE Reserves

Answer 15

Mark-to-model approach, 3 components:
Expected value of nominal future cash flows
Reduction to reflect time value of money, plus load to reflect illiquidity
Risk adjustment

Question 16

Value of In-Force

Answer 16

VBIF calculated by determining fair value of liabilities to be incurred in connection with UEPR

Question 17

Goodwill

Answer 17

Difference between purchase price of a company and book value; dependent on Accounting framework

Question 18

SAP focus in Annual Statement

Answer 18

Balance sheet

Question 19

GAAP focus in Annual Statement

Answer 19

Income sheet

Question 20

Premium deficiency reserve

Answer 20

When related only to UEPR:

Expected (LLAE + Div + DPAC) - Investments