US GAAP vs. Statutory Accounting for Insurance
Comparing the two major accounting frameworks for US insurance companies and their actuarial implications.
Statutory Accounting
Statutory accounting principles (SAP) are prescribed by state insurance regulators through the NAIC's Accounting Practices and Procedures Manual. SAP prioritizes solvency protection, using conservative assumptions that generally result in higher reserves and lower reported surplus compared to GAAP. Key features include immediate expensing of acquisition costs (no deferred acquisition costs), prescribed reserve methodologies, and conservative asset valuation rules. The statutory balance sheet uses admitted assets (excluding assets that cannot readily be converted to cash to pay claims) and non-admitted assets, a distinction absent in GAAP reporting.
GAAP Accounting
US GAAP for insurance follows ASC 944, which aims to match revenues and expenses over the life of insurance contracts. GAAP allows capitalization and amortization of acquisition costs (DAC), uses best-estimate assumptions with provisions for adverse deviation, and values assets at fair value or amortized cost depending on classification. The FASB's long-duration targeted improvements (LDTI) updated GAAP for long-duration contracts, requiring regular updating of assumptions and fair value measurement of market risk benefits. Actuaries must understand both frameworks, as insurers report under SAP to regulators and under GAAP to investors and rating agencies.