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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Insurance: Perspective and Issues

The two major types of insurance companies are life and property and casualty. Each category is further subdivided into stock companies and mutual associations. Due to the regulated nature of the insurance industry, financial reporting may be in conformity to statutory accounting principles (SAP) or GAAP. Furthermore, publicly held companies subject to SEC accounting rules will account for certain transactions and events in other manners dictated by those requirements. While accounting principles under GAAP are broadly applicable to all types of insurance companies (including those dealing in such specialized products as mortgage insurance, title insurance, and reinsurance), the nature of the estimation process (such as for claims liabilities) differs substantially depending upon the character of the risks assumed.

The main contrasts between SAP and GAAP arise from the more conservative nature of SAP, which is a reflection of the insurance regulatory agencies' concern with protection of the policyholders' interests, and hence with the liquidity and solvency of the insurance companies. Accordingly, under SAP certain costs, such as policy acquisition expenses, are written off as incurred; certain nonliquid assets, such as property and furniture, are not recognized; and claims liabilities are very conservatively estimated. In contrast to this essentially short‐term perspective, financial statements prepared on the GAAP basis are more concerned with ...

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