GAP v SAAP Flashcards

1
Q

SAP

A

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

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2
Q

Deferred Acquisition Costs

A

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

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3
Q

Nonadmitted Assets

A

GAAP does not have this category & SAP does not consider these assets for purpoe of calc stat surplus

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4
Q

Deferred Tax Assets

A

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
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5
Q

Invested Assets

A

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

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6
Q

Prospective Reinsurance

A

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

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7
Q

Retroactive Reinsurance:

A

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

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8
Q

Anticipated S&S

A

GAAP=subtract anticipated S&S from reserves

SAP=option to record reserves gross or net of anticipated S&S in Sched P

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9
Q

Reserve Discounting:

A

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

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10
Q

Goodwill

A

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
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