What are recognized and accepted by state insurance departments in evaluating the solvency of an insurer for statutory accounting purposes?

Statutory Accounting Principles (SAP), which state insurance departments use to evaluate an insurer's solvency, are designed to be conservative. Under SAP, only assets that are liquid and available to pay policyholder claims are recognized on the statutory balance sheet. These specific assets are termed "admitted assets." Assets that are not easily convertible to cash to meet obligations (e.g., office furniture, automobiles, certain receivables) are classified as "non-admitted" and are excluded from the calculation of the insurer's surplus, providing a more conservative view of its financial strength.

A. Assets: This is a general accounting term. SAP makes a crucial distinction between admitted and non-admitted assets for solvency evaluation, making this answer too broad.

B. Determined assets: This is not a standard or recognized term within the framework of Statutory Accounting Principles or general accounting practices.

D. Altered assets: This is not a recognized accounting classification and has no relevance to the regulatory evaluation of an insurer's financial condition.

1. National Association of Insurance Commissioners (NAIC). Accounting Practices and Procedures Manual, Vol. I, SSAP No. 4—Assets and Nonadmitted Assets, Paragraph 2. This official source states, "An admitted asset is an asset that is permitted by statute to be included in the statutory financial statements of an insurer... The primary focus of solvency regulation is to ensure that assets are available to meet policyholder obligations."

2. Grace, M. F., & Klein, R. W. (2009). The Regulation of Insurance Markets. World Bank Policy Research Working Paper 5106, Page 11. The paper explains that Statutory Accounting Principles (SAP) are "more conservative than GAAP" and that "certain assets, such as furniture and fixtures, are 'non-admitted' and given a value of zero in SAP financial statements." This highlights the concept of admitting only certain assets for solvency purposes.

3. Harrington, S. E. (2009). "The Financial Crisis, Systemic Risk, and the Future of Insurance Regulation." Journal of Risk and Insurance, 76(4), 785-819. In its discussion of insurance solvency regulation, the paper implicitly relies on the SAP framework, where the valuation of assets and the distinction between admitted and non-admitted assets are fundamental to determining statutory capital and surplus (p. 791). https://doi.org/10.1111/j.1539-6975.2009.01330.x