Definition
Statutory Accounting Principles (SAP) are a set of accounting standards specifically designed for insurance companies. These principles are enforced by the National Association of Insurance Commissioners (NAIC) to ensure uniformity and consistency in the preparation of statutory financial statements across the insurance industry in the United States.
Purpose
The main objective of SAP is to provide a regulatory framework for financial reporting that emphasizes the solvency of insurance companies. This helps protect policyholders by ensuring that insurance companies maintain sufficient financial resources to fulfill their obligations.
Key Tenets of SAP
- Conservatism: In SAP, greater emphasis is put on solvency protection through conservative measures, such as admitting conservative asset valuations and setting aside sufficient reserves for obligations.
- Recognition of Liabilities: SAP requires prompt recognition of liabilities, helping ensure that the insurer’s financial health is not overstated.
- Admission of Assets: Under SAP, assets are admitted (recognized) based on their ability to be liquidated under the terms of the existing statutes.
Comparison with GAAP
In contrast to Generally Accepted Accounting Principles (GAAP), which are more familiar to non-insurance entities and focus more on earnings visibility for investors, SAP enforces policies for insurance companies that emphasize stability and the ability to cover liabilities.
Regulatory Influence
The development and enforcement of SAP are facilitated by the NAIC, contributing to its role as a central, supportive body in the regulation and oversight of the U.S. insurance market. The adapted guidelines include how the principles apply according to laws such as the Model Audit Rule and state-specific requirements.
For further reading and detailed guidelines by state or about differences between SAP and GAAP, you can visit the NAIC Official Site.
