NAIC Accounting

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  1. Initiatives of the Accounting Practices and Procedures Task Force
    • provide authoritative guidance to regulators on current statutory accounting issues
    • continue evaluation of statutory accounting principles for purpose of development, expansion and codification
    • extend evaluation of statutory accounting principles to address areas specific to health
    • maintain codified principles by providing periodic updates
  2. GAAP vs SAP
    • GAAP is designed to meet needs of different users of financial statements
    • stresses measurement of emerging earnings from period to period
    • recognizes more assets like deferred policy acquisition expense, deferred income tax
    • SAP is designed to address concerns of regulators
    • stresses measurement of ability to pay claims in the future (conservative)
  3. Concepts of statutory reporting
    • conservatism: provide margin of protection to policyholders from adverse fluctuations
    • consistency: meaningful, comparable financial information
    • recognition: liabilities recognized as incurred; revenue as earning process is completed
  4. Statutory hierarchy
    • SSAPs (Statements of SAPs)
    • consensus position of Emerging Accounting Issues Working Group adopted by NAIC
    • NAIC Annual Statement Instructions
    • SAP Statement of Concepts
    • sources of non authoritative GAAP accounting guidance
  5. Factors influencing the level of materiality
    • circumstances where accounting adjustment puts the insurer in danger of being in breach of a covenant or regulatory requirement may justify a lower threshold
    • failure to disclose separately a nonrecurrent item of revenue may be material at low level
    • miscategorization of assets or liabilities is material if causes the insurer to trigger an event under Risk-Based Capital requirements
    • amounts too small to warrant disclosure in normal circumstances may be material if they arise from abnormal or unusual transactions or events
  6. Considerations when selecting materiality level
    • relative rather than absolute size of item
    • degree of precision attainable in estimating the item
  7. Permitted vs prescribed accounting practice
    • permitted accounting practice include practices specifically requested by an insurer that depart from NAIC SAP, and have received approval from state regulatory authority
    • prescribed accounting practices are those incorporated directly or by reference by state laws, regulations and general administrative rules applicable to all insurers
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NAIC Accounting
2014-04-12 23:41:38
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