![]() ![]() Income tax effects of differences between tax and book accounting are recognized under SAP and GAAP.For property and casualty direct and group billed uncollected premiums, bills receivable for premiums, and amounts due from agents and brokers, the date for purposes of aging premiums is the policy effective date, not the contractual due date to the insurer. Life insurance companies are required to treat policy loan balances that exceed the underlying cash surrender values credited to policyholders under their policies as non-admitted assets. These include certain receivables in excess of 90 days past due (whether or not collectible), prepaid expenses, furniture and equipment, investments not authorized by statute or in excess of statutory limitations, goodwill in excess of 10% of capital and surplus (for purposes of the calculation of this limitation, capital and surplus is reduced by admitted goodwill, net deferred tax assets, and electronic data processing (EDP) equipment), certain portions of deferred tax assets, and EDP equipment in excess of 3% of capital and surplus (net of goodwill, deferred tax assets and EDP equipment). Certain assets and investments recognized under GAAP are non-admitted under SAP.Because PBR requirements impose a minimum reserve, it is expected that statutory life reserves may still exceed GAAP reserves. The guidance is effective for new business only. Beginning January 1, 2020, insurers will be required to calculate statutory reserves for certain life insurance products using “principle-based reserving” (PBR) requirements, which will replace reserving formulas with a set of principles that allows an insurer to reflect its own credible experience and risks in calculating reserves.This generally results in SAP reserves being higher than GAAP reserves because the SAP assumptions are generally more conservative than GAAP. Statutory reserves do not consider withdrawal assumptions. Statutory reserves are established for life and health companies using specified mortality and morbidity tables and estimates of future investment earnings, lapses, and expenses, based on state law or regulation, while GAAP reserves are established based on company or industry experience.GAAP requires the recognition of income to be delayed into future periods. ![]() For reinsurance of in-force life insurance contracts, SAP requires commissions to be included in surplus and amortized to income over the life of policies. For prospective life insurance contracts, amounts are recognized as commission income without limitation. SAP generally allows companies to recognize commission income received under property and casualty reinsurance contracts immediately when it does not exceed the acquisition costs incurred.Qualifying policy acquisition costs are capitalized and amortized over the policy term under GAAP, while under SAP these costs are expensed as incurred.SSAP 51 classifies contracts that have any mortality or morbidity risk, regardless of significance, and contracts with a life contingent annuity purchase rate guarantee option as insurance contracts. Long duration insurance policies without significant mortality or morbidity risk are classified as investment contracts and are accounted for using a deposit method under GAAP.GAAP accounting is not based on the type of business but has separate accounting models for short duration and long-duration contracts. SAP rules follow the type of business (e.g., life, property and casualty) but make no distinction between long-duration and short-duration contracts.Under GAAP, entities under common control are presented on a consolidated basis. Statutory financial statements are presented for each legal entity insurer and subsidiaries of each entity are not consolidated with the parent company.The principal differences between NAIC statutory accounting principles (SAP) and GAAP include: Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) Loans and investments (post ASU 2016-13 and ASC 326) Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) Insurance contracts for insurance entities (post ASU 2018-12) ![]() IFRS and US GAAP: Similarities and differences ![]() Business combinations and noncontrolling interestsĮquity method investments and joint ventures ![]()
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