Tier 2

Question 1

What’s the difference between SAP and GAAP?

Answer 1

SAP is prescribed by an insurer’s domiciliary state and GAAP is used by all public companies.

Question 2

Intended user and purpose of SAP and GAAP?

Answer 2

SAP:
- Used by regulators
- Primary concern is solvency
- SAP is more conservative
GAAP:
- Used by investors/creditors
- Primar concern is measurement of earnings

Question 3

Important differences between SAP and GAAP (ART)

Answer 3

(A) Asset Recognition
SAP: Assets are recognized when expense is incurred
GAAP: May defer recognition to match revenue with expense
(R) Reinsurance in Loss Reserves
SAP: Recorded NET of reins.
GAAP: Recorded as GROSS of reins.
(T) Taxes
SAP: Mostly not deferred
GAAP: Can be deferred

Question 4

5 Elements of Financial Statements

Answer 4

1. Assets
2. Liabilities
3. Surplus or Equity (net assets)
4. Revenue
5. Expenses

Question 5

5 Statements in Financial Statements

Answer 5

1. Balance Sheet
2. Income Statement
3. Changes in surplus not recorded in BS/IS
4. Statement of cash flows
5. Notes to financial statement

Question 6

What does a balance sheet show?

Answer 6

It’s a snapshot of current assets, liabilities, and equity

Question 7

What does an income statement show?

Answer 7

It shows profitability over a certain period