Income Statement

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Based on past exams, the main things you need to know (in rough order of importance) are:

• surplus: calculation of surplus, surplus changes, non-I/S surplus changes & reasons for surplus changes
• statutory income: calculation of statutory income
• basic accounting terms and concepts: (SAP = Statutory Accounting Principles)

   => balance sheet, income statement, assets, liabilities, revenue, expenses, reinsurance

• calculation of of bond values

reference	part (a)	part (b)	part (c)	part (d)
E (2018.Spring #9)	define: - insurer recoverable	define: - insurer payable	define: - reinsurer funds held	define: - reinsurance provision
E (2018.Spring #10)	statutory income: - calculate	expense allocation: - impact on profitability	expense allocation: - actuary's involvement
E (2017.Fall #9)	statutory income: - calculate	users & purpose: - B/S & I/S 1
E (2017.Fall #10)	surplus: - calculate surplus
E (2017.Fall #13)	calculate: - value of bonds	regulator concerns: - regarding assets
E (2016.Fall #14)	surplus: - calculate surplus	financial health: - evaluate
E (2015.Fall #15)	surplus: - non-I/S surplus changes	surplus: - total surplus change	surplus: - reasons for surplus chg
E (2014.Fall #12)	surplus: - calculate surplus	see NAIC.IRIS	see Odomirok.10-Notes
E (2013.Fall #19)	SAP: - identify errors	surplus: - calculate surplus	reinsurance: - reasons to purchase	regulator concerns: - fair value
E (2012.Fall #14)	surplus: - impact on surplus	see Odomirok.19-RBC

¹ B/S stands for Balance Sheet, and I/S stands for Income Statement.

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In Plain English!

If you've taken a university course in accounting then you're in good shape you're familiar with the layout of financial statements. If you haven't, it's not a great problem, but it might be a little harder to understand the big picture.

SAP versus GAAP

Before doing anything else, you need to know the frameworks that companies use for accounting.

Question: what is SAP and what is GAAP

• Both are frameworks of accounting principles/rules for reporting financial transactions and operating results:

==> SAP: prescribed by an insurer’s domiciliary state

==> GAAP: used by public & private companies (insurers & non-insurers)

Obviously there is some difference between how insurers and non-insurers do their accounting.

Question: why do insurers follow different accounting rules

==> SAP:

• used by regulators
• primary concern is solvency
• SAP is more conservative (protects policyholders)

==> GAAP:

• used by investors/creditors
• primary concern is measurement of earnings

That's all well and good, but what do we mean when we say SAP is more conservative? Well, GAAP came first and SAP evolved from GAAP to satisfy the specific goal of monitoring for solvency.

Question: what are the specific differences between SAP and GAAP

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BattleCodes

Memorize:

Conceptual:

Calculational: