CFE Statutory Accounting Principles & Insurance Financial Statements

Question 1

What is the primary objective of Statutory Accounting Principles (SAP) as established by the NAIC?

Accepted Answer

Protect policyholders by ensuring insurance company solvency

Answer

Maximize reported profit for shareholders

Answer

Align insurance reporting with international accounting standards

Answer

Simplify tax reporting for insurance companies

Question 2

Which organization is primarily responsible for developing and maintaining Statutory Accounting Principles for U.S. insurance companies?

Accepted Answer

National Association of Insurance Commissioners (NAIC)

Answer

Financial Accounting Standards Board (FASB)

Answer

American Institute of Certified Public Accountants (AICPA)

Answer

International Accounting Standards Board (IASB)

Question 3

Under SAP, how are policy acquisition costs (such as agent commissions) treated compared to GAAP?

Accepted Answer

Expensed immediately under SAP, but deferred and amortized under GAAP

Answer

Capitalized and amortized over the policy period under both SAP and GAAP

Answer

Deferred and amortized under SAP, but expensed immediately under GAAP

Answer

Expensed immediately under both SAP and GAAP

Question 4

What is 'policyholder surplus' in statutory insurance accounting?

Accepted Answer

The excess of admitted assets over total liabilities

Answer

The total amount of premiums collected from policyholders

Answer

The profit distributed to policyholders in mutual companies

Answer

The amount set aside specifically for unpaid claims

Question 5

Which of the following would most likely be classified as a 'nonadmitted asset' under SAP?

Accepted Answer

Furniture and equipment exceeding regulatory allowed limits

Answer

U.S. Treasury bonds held in the investment portfolio

Answer

Cash and bank deposits in federally insured institutions

Answer

Premiums receivable within 90 days of the balance sheet date

Question 6

The Risk-Based Capital (RBC) formula for insurance companies is designed to:

Accepted Answer

Set minimum capital requirements based on each insurer's risk profile

Answer

Calculate premium rates appropriate for each line of business

Answer

Determine the maximum reinsurance retention allowable per risk

Answer

Maximize investment returns for policyholder benefit

Question 7

What is the primary purpose of the NAIC Annual Statement, also known as the 'Convention Blank'?

Accepted Answer

To provide a standardized financial report filed with state insurance regulators

Answer

To report tax liability to state revenue departments

Answer

To disclose investment strategies to existing policyholders

Answer

To calculate premium rates for the upcoming policy year