Guidelines that insurance companies are required to follow when filing an annual financial statement (convention blank) with state insurance regulatory authorities. Statutory accounting is more conservative than generally accepted accounting principles (GAAP) because it overstates expenses and liabilities and understates income and assets. Also see generally accepted accounting principles (GAAP) .
Insurance Encyclopedia
Statutory accounting principals
Legally mandated principles the insurer must follow when preparing a financial statement to the state insurance department.
Statutory accounting principles (SAP)
Statutorily mandated accounting principles and practices that must be followed when an insurance company submits its annual financial statement to the department of insurance. The principal objective of statutory accounting is to provide a framework for a conservative measurement of an insurer’s surplus. In contrast to Generally Accepted Accounting Principles (GAAP), which are followed by most other businesses. See GAAP accounting.
*****
US: Rules for insurance accounting codified by the National Association of Insurance Commissioners (NAIC) or as promulgated by a domicile as rules to be used in reporting an insurer’s results to regulators. These rules focus on the balance sheet and solvency analysis, and differ from the generally accepted accounting principles (GAAP) used for other types of businesses. For example, statutory accounting rules do not allow the inclusion of certain nonadmitted assets on the balance sheet; require that certain loss reserves be set by conservative formulas instead of the insurer’s estimates; require the insurer to immediately recognize the expenses associated with writing new business instead of amortizing them over the policy period; and do not allow premiums for reinsurance placed with unauthorized reinsurers to be recognized as an asset.
Statutory Annual Statement
See: Annual Statement, Convention Blank.
Statutory capital
The amount of capital and/or surplus required in order for an insurance company to obtain and retain a license to do business. May be stated as a minimum dollar amount or by reference to a solvency ratio or a solvency margin.
Statutory declaration
A written statement of facts under the Statutory Declarations Act 1835 declared as being true before a commissioner or magisterial officer. In policy claims conditions the insurer calls for proofs of loss and may demand statutory declarations to verify the truth of an insured’s claim.
Statutory discharge
The discharge by a pension scheme member who has exercised his statutory right to a cash equivalent under PSA93, s.99 on leaving the scheme. An alternative to cash is a statutory transfer.
Statutory earnings (or losses)
The amount of earnings or losses to an insurer, shown on the NAIC convention blank.
Statutory examinations
Examinations of boilers, steam and air receivers, hoists and lifts, and other plant and equipment in pursuance of a range of legislative requirements. The relevant legislation lays the inspection frequency, e.g. steam boilers 14 months, cranes and chains, ropes and lifting tackle 6 months. Inspections have to be carried by a ‘competent person.
Statutory exclusions
The Marine Insurance Act 1906, s.55, lists several losses for which underwriters are not liable unless the policy otherwise provides. The exclusions are: wilful misconduct; delay; wear and tear, ordinary leakage and breakage, inherent vice or loss caused by rats or vermin; injury to machinery not caused by maritime perils.