Learn something new every day
More Info... by email
Statutory accounting principles are specific accounting guidelines for insurance companies. The National Association of Insurance Commissioners (NAIC) is a nonprofit organization in the United States responsible for creating these principles. Statutory accounting principles are seen as regulatory standards and are generally more conservative than generally accepted accounting principles (GAAP). GAAP is the most authoritative accounting standards in the United States. Insurance companies must prepare and submit all financial reports to regulators according to NAIC principles.
The NAIC is a nonprofit organization that acts as the primary regulatory advisor and supervisory agency for insurance companies in the United States. Each state has an insurance commissioner responsible for providing guidance to insurance companies regarding regulations and policies. While each state is not required to adopt NAIC regulations or standards, many states implement NAIC policies to create uniformity for insurance companies.
Statutory accounting principles provide guidance on several different issues relating to insurance companies. Liabilities, asset impairments, fund assessments, real estate investments, software revenue recognition, fair value measurements, recognition and disclosure requirements, and a policy statement regarding valuation are the primary accounting standards issued by NAIC. The NAIC often considers or consults GAAP when developing new statutory accounting principles. The Statutory Accounting Principles Working Group (SAPWG) is the primary division of the NAIC responsible for developing new accounting practices, procedures, and guidelines for insurance companies.
The SAPWG periodically develops new standards to address accounting issues that are not covered by current statutory accounting principles, amend current principles, or supersede old principles that no longer apply in the business environment. Similar to GAAP, the SAPWG will usually issue a draft on new accounting principles that includes an executive summary, along with a full discussion on the details for new accounting principles. This process ensures insurance companies and state insurance commissioners can provide insight on new accounting principles. The length of time from issuing the draft and implementing the new accounting principle can vary, depending on the amount of feedback regarding the potential accounting principle update.
In recent years, the review of GAAP and International Financial Reporting Standards (IFRS) has also entered the realm of the NAIC. In 2010, the NAIC began issuing reports to insurance companies, regulators, auditors, and other individuals regarding the implementation of IFRS into statutory accounting principles. The Financial Accounting Standards Board, the agency responsible for developing GAAP, began reviewing the process combining GAAP with IFRS in 2006. This combination will certainly affect the NAIC since they base insurance accounting principles on GAAP. However, the NAIC may implement IFRS prior to GAAP incorporating IFRS into current US accounting standards.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!