Which statement about nonadmitted assets is true?

• A. SAP does not consider these assets for the purpose of calculating statutory surplus.
• B. GAAP excludes nonadmitted assets from surplus.
• C. SAP includes nonadmitted assets in statutory surplus.
• D. GAAP uses nonadmitted assets as offset.

Answer: (A)

In SAP, the amount that affects statutory surplus comes from admitted assets only. Nonadmitted assets are assets that regulators do not allow to be counted toward solvency calculations, so they are excluded when determining statutory surplus. This means the statement is true: SAP does not consider nonadmitted assets in the calculation of statutory surplus.

Nonadmitted assets are still shown on the balance sheet, but they don’t contribute to the surplus because only admitted assets provide financial cushion for policyholder obligations under SAP. This is a SAP-specific concept aimed at ensuring the solvency measure reflects assets that are readily usable for claims and expenses.

GAAP, by contrast, doesn’t calculate statutory surplus, and the treatment of nonadmitted assets isn’t part of GAAP’s framework for reporting insurer solvency. Therefore, the other choices don’t fit: SAP does not include nonadmitted assets in surplus, and GAAP does not use nonadmitted assets as an offset.