In the context of SAP and GAAP, which basis is used for surplus measurement?

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Multiple Choice

In the context of SAP and GAAP, which basis is used for surplus measurement?

The key idea is how resources are counted when determining an insurer’s surplus. In statutory accounting (used for SAP), regulators emphasize conservatism and admitted resources. That means many items that look like assets on a market or GAAP view are not fully usable for solvency unless they meet admitted criteria, so the surplus is measured on a net basis after netting or excluding nonadmitted items and ceded amounts. In contrast, GAAP presents assets and liabilities on a gross, overall basis, with reinsurance assets and related items shown separately and not netted away in the same regulatory sense. So, surplus under SAP is measured on a net basis, while surplus under GAAP is measured on a gross basis.

The key idea is how resources are counted when determining an insurer’s surplus. In statutory accounting (used for SAP), regulators emphasize conservatism and admitted resources. That means many items that look like assets on a market or GAAP view are not fully usable for solvency unless they meet admitted criteria, so the surplus is measured on a net basis after netting or excluding nonadmitted items and ceded amounts. In contrast, GAAP presents assets and liabilities on a gross, overall basis, with reinsurance assets and related items shown separately and not netted away in the same regulatory sense. So, surplus under SAP is measured on a net basis, while surplus under GAAP is measured on a gross basis.

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