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

SAP is designed to ensure insurers maintain sufficient assets to pay policyholder claims, prioritizing solvency protection over profitability metrics.

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

The NAIC develops and maintains the Accounting Practices and Procedures Manual that governs SAP for insurance companies in the United States.

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

Under SAP, policy acquisition costs are expensed immediately (conservatism principle), while GAAP allows deferral and amortization over the policy period through Deferred Policy Acquisition Costs (DPAC).

Question 4

What is 'policyholder surplus' in statutory insurance accounting?

Accepted Answer

The excess of admitted assets over total liabilities

Answer

Policyholder surplus is the statutory equivalent of equity, representing admitted assets minus total liabilities, serving as a financial cushion to absorb unexpected losses.

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

Furniture and equipment that exceed allowed limits are nonadmitted assets because they cannot be readily converted to cash to pay claims and are excluded from statutory solvency calculations.

(CFE) Certified Financial Examiner Practice Test

(CFE) Certified Financial Examiner Practice Test

CFE Statutory Accounting Principles & Insurance Financial Statements