Odomirok 8-9 IS Flashcards
SAP & GAAP users
SAP: prescribed by an insurer’s domiciliary state
GAAP: used by all public companies
SAP & GAAP purpose
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
SAP & GAAP differences
ART
Asset recognition
SAP: asset is recognized when expense is incurred
GAAP: may defer recognition to achieve matching of revenue & expenses
Reinsurance in loss reserves
* SAP: loss reserves are recorded NET of reinsurance
* GAAP: loss reserves are recorded GROSS of reinsurance
Taxes
* SAP: taxes (mostly) not deferred
* GAAP: tax can be deferred
U/W Income formula
U/W Income = EP - (current AY loss) - (change in prior year’s AY loss) - LAE - (other U/W expense)
SAP uses incurred expenses
Net Investment Income formula
Net Investment Income
= (investment revenue) - (investment expenses)
= (net investment income earned) + (net realized capital gains)
revenue includes realized capital gains, but excludes unrealized capital gains
Other Income formula
Other Income = SUM(agents’ balances charged off, service fees, aggregate write-ins)
Total Net Income formula
Total Net Income = (U/W income) + (net investment income) + (other income) - (dividends to policyholders) - (fed/foreign taxes incurred)
Direct charges to surplus
direct charges to surplus =
+other surplus changes =
+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
+additional capital contributions (includes change in surplus notes and change in gross paid-in & contributed surplus)
-stockholder dividends
5 Financial Statements
Balance Sheet: statement of financial position (@ point in time)
Income Statement: statement of financial performance (over a particular period)
Capital & Surplus: shows changes in surplus not recorded in Income Statement
Statement of Cash Flow: shows inflow and outflow of cash
Notes to Financial Statement: quantitative & qualitative disclosures