GAP v SAAP Flashcards
SAP
used primarily by regulators, and therefore focuses on the insurer’s ability to pay claims (surplus adequacy); conservatism is designed to create a margin of safety, which will be required in the event of liquidation, where regulator has to settle claims while the insurer is not writing any new business
Deferred Acquisition Costs
GAAP=insurers can create DAC asset to defer recognition of acq expenses to match recogn of EP, only direct costs from successful acq/renewal can be deferred and in limited circumstances certain direct marketing advertising
-SAP=all cost expense as incd
Nonadmitted Assets
GAAP does not have this category & SAP does not consider these assets for purpoe of calc stat surplus
Deferred Tax Assets
established to reflect temp diff between accounting and tax treatment of assets & liab ie recognizes future reduction in taxable income
- GAAP=fully recognizes DTA but creates valuation allowance if more likely than not that DTAs will not be recognized
- SAP=strict admissibility test to recognize DTA with valuation allowance
Invested Assets
GAAP=valuation depends on purpose; available for sale or held to maturity or held for trading;
- AFS=purchased with intention to sell before maturity but after yr, fair value with change in fair value being recorded as other comp income
- HTM=amortized cost
- HFT=intention of selling within hrs or days, fair value with changes recorded as income
SAP: investment grade bonds & higher rated preferred stocks=amortized cost, lower rated bonds & preferred stocks=min(amortized cost, fair value), common stock & higher rated non-redeemable preferred=fair value
-changes in carrying value due to changes in FV are recorded as direct changes to surplus
Prospective Reinsurance
GAAP=establishes asset to recognize ceded reins recoverables bc usually does not allow offsetting of a&l
SAP=records reserves net of anticipated reinsurance recoveries
Retroactive Reinsurance:
GAAP=ceded reserves are treated as reins recoverable asset, any gain is deferred, this gain is amortized over time
SAP=undiscounted ceded reserves are recorded as neg write in liab so Sched P not impacted, gain may be generated is consideration paid is less than negative write in liab
-other income and surplus benefit=special surplus
Anticipated S&S
GAAP=subtract anticipated S&S from reserves
SAP=option to record reserves gross or net of anticipated S&S in Sched P
Reserve Discounting:
SAP=rarely allows discounting except for certain WC & long term disability claims that have fixed and reasonably determinable payment patterns (tabular discounts)
-GAAP=allows SAP discount to be used but gives option to use alt discount rate as long as reasonable based on conditions applicable at time claims are settled
Goodwill
generated in business combination
- GAAP=accounted for with purchase accounting, a&l are recorded at fair value, goodwill is diff between purchase price and FV of net assets, goodwill is regularly evaluated for impairment
- SAP=depends on how business combo is being accounted for
- statutory purchase=produces parent-subs, a&l are recorded at historical SAP carrying values, goodwill is diff between purchase price and stat surplus, capped at 10% of acquiring firm’s capital & surplus from most recent AS, amortized to unrealized capital gains&losses over period which acquiring firm benefits economically