DISC IA CH. 1

GAAP Accounting

Broad use accounting principles focusing on the value or performance of an organization indefinitely.

Regulatory/Supervisory Accounting

Accounting principles for regulators interested in going-concerns or runoff values for a business

statutory accounting principles (SAP)

Accounting principles set by states that domestic insurers must follow

Tax Accounting

Accounting frameworks for calculating taxes subject to social engineering, public policy, political, or verifiability concerns

Management Accounting

Accounting practices for internal management that accounts for specific exposure desires (capping, reinsurance, retention)

Conditions for Deposit Accounting

No transfer risk. Time of payments are uncertain. Reinsurance is retroactive

deposit liability

a liability account created by contracts adhering to deposit accounting. Increases with receipts. Present value of future payments

Bank Deposit Approach

A deposit accounting approach where an initial deposit grows with interested credited at a predetermined interest rate and additional deposits and declines by withdrawals. The end of period balance is determined by the above factors.

Prospective Approach

A deposit accounting approach where the value of the deposit is equal to the present value of future payments solely. Accordingly, the value of the deposit is dependent discount rate and amortization of interest or a change in future losses.

Retrospective Approach

A deposit accounting approach where the deposit is a function of the initial deposit, past payments, and present value of future payments. Interest rate is a function of initial deposit, future cashflows, and previous payments.

Understandability

A qualitative accounting information criteria that states financial reports must be transparent, intelligible, and clearly disclosed.

Relevance

A qualitative accounting information criteria that states financial information must be timely, have predictive value, and provide useful feedback on previous decisions.

Faithful Representation

A qualitative accounting information criteria that states financial information must be verifiable, complete, neutral, and honest.

Comparability and Consistency

A qualitative accounting information criteria concerning accounting method uniformity across reporting periods.

Lack of Bias

A qualitative accounting information criteria that states financial information must be unbiased or justify bias in reports

Cost-Benefit Effectiveness

A qualitative accounting information criteria that states the cost of financial information should be reasonable in relation to the expected benefit of the information.

Relevance and Reliability

A trade-off concerning the value of infrequently traded assets and difficult-to-estimate insurance liabilities.

Lack of Bias and Reliability

A trade-off concerning uncertainty of estimates. Conservative vs. optimistic valuations are dependent on perspective.

Mark-to-model

Describes an estimated fair value that is made on a model

Mark-to-market

Describes an estimated fair value that is made on current market price

Deferral-Matching

An accounting approach that attempts to coordinate the timing of income and expense recognition to occur simultaneously at a trigger event. Revenue is recognized when earned

Deferred acquisition cost (DAC) Assets

Assets that represent postponed up-front expenses, offsets a liability

Unearned premium liability

Liability used to defer the recognition of revenue, offsets an asset

Asset-liability approach

an accounting approach that recognizes account balances at the balance sheet date. Future assets are booked as liabilities. Revenue is recognized upfront

Impairment

tests and rules to mitigate unequal valuations between accounting methods.

Changes in Accounting Principle

Often requires changes in results for current and previous periods

Changes in Accounting Estimate

Often requires changes in results for current period. R

Principle based standards

General and interpretation dependent. Flexible

Rule based standards

Inflexible and defined. Easy to audit

Bonds

Major class of assets for NA insurers.

Notes and Disclosures

Contains a descriptions of accounting policies, discussions on estimate reliability, risk, and uncertainty, forward-looking information, and discounting of loss +lae.

Fixed additional payments

service charges

variable additional payments

finance chargesAu

Audit Premium

earned, estimated premium that is written after it is earned