Part 20 (NAIC Preamble) Flashcards
Why is it important to be conservative
If there is adverse deviation from initial estimates, it may threaten the ability to meet policyholder obligations
Valuation procedures should aim to prevent what
Sharp Fluctuations in surplus
Is SAP conservative?
SAP is conservative in some respects
Not unreasonably conservative over the span of several economic cycles
Why should reports be consistent over the years?
Why might reports change?
- Provides an accurate indication of the financial condition of the firm
- Environment is always changing, it may be necessary to make updates to recognize these changes
What is used for solvency measure on determining the financial condition
Balance Sheet
What is a secondary focus for solvency measurements
income statement
Recognition of assets (when they should not be in measurement of surplus)
- have economic value other than what can be used to fulfill policyholder obligations
- unavailable due to encumbrances
When should liabilities be recongnized
when incurred
When should revenues be recognized in measurement of surplus
Only when the item has been earned, like with premium
What happened before codification
SAP did not result in a consistent and comprehensive basis of accounting amount states
What did the introduction of codification provide
More uniform accounting rules
Codification does not intend to preempt what
State Authority
When SAP needs to be applied in unique circumstance, its use should be consistent with what
The concepts of Conservatism, consistency, and recognition
Not very testable: Heirachy of rules
- SSAP
- Interpretations of existing SSAP by SAP working Group
- NAIC annual Statement instructions
- SAP statement of concepts
- Sources of nonauthoritative GAAP accounting guidance
Some things that can affect materiality
- if accounting adjustment puts the insurer in danger of being in breach of a regulatory requirement
- miscategorization of assets or liabilities that would cause the insurer to trigger an event under the RBC requirements may be material
- amounts which are too small to warrant disclosure under normal circumstances may be considered material if they arise from abnormal events
- Lower amount of deviation will be considered material as the degree of precision increases
