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Fundamentals of Risk and Insurance, 11th Edition by Therese M. Vaughan, Emmett J. Vaughan

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CHAPTER OBJECTIVES

When you have finished this chapter, you should be able to

  • Explain the nature of insurance company reserves
  • Explain the effect of statutory accounting requirements on the indicated profitability of insurers
  • Describe the types of reinsurance and discuss the purposes of reinsurance
  • Describe the ways in which insurance companies are taxed

In a general sense, the financial statements of insurance companies are similar to those of other business firms. However, state regulations require certain modifications of the traditional accounting practices in insurance accounting. These changes can distort the financial statements of insurers if they are not recognized. This chapter points out a few of the major differences between insurance accounting and accounting practices in other businesses and relates the implications of these differences to the financial operations of insurers.

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STATUTORY ACCOUNTING REQUIREMENTS

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The set of accounting procedures embraced by insurance regulators is referred to as the statutory accounting system because it is required by the statutes of the various states. Nearly all insurance company accounting is geared to the National Association of ...

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