Statutory Accounting

What Does Statutory Accounting Mean?

Statutory accounting is the accounting practice used by insurance companies in the USA. It differs from the accounting systems used by other businesses because insurers often return a significant portion of their earnings to policyholders.

Insuranceopedia Explains Statutory Accounting

Generally Accepted Accounting Principles (GAAP) are the standards accountants follow when preparing financial statements for businesses. However, these principles are not used for financial statements of insurance companies, which instead adhere to Statutory Accounting Principles (SAP).

Statutory accounting is more rigid than GAAP because states must monitor the financial solvency of insurance companies to ensure they can fulfill their obligations to policyholders. The SAP figures that regulators review are also what rating agencies like A.M. Best rely on when evaluating insurer financial strength, which is why shoppers comparing the best car insurance companies or the top life insurance companies will see those ratings referenced alongside price and coverage.