Life & Health Insurance Companies — Checklists and Illustrative Financial Statements

This financial accounting and reporting practice aid is invaluable to anyone who prepares financial statements and reports for life and health insurance companies. The checklists have been updated to reflect AICPA and FASB pronouncements and interpretations issued as of December 31, 2007. These checklists can be used by preparers of life and health insurance companies financial statements prepared in conformity with generally accepted accounting principles and by practitioners who audit, review, or compile those financial statements as they evaluate the adequacy of disclosures made in the basic financial statements, notes to the financial statements, and required supplementary information. Illustrative financial statements and auditor’s reports are included in this practice aid.

This nonauthoritative practice aid has been prepared by the AICPA staff and has not been reviewed, approved, disapproved, or otherwise acted on by any senior technical committee of the AICPA and do not represent official positions or pronouncements of the AICPA.

FSP Section 20,000
Checklists and Illustrative Financial Statements for Life and Health Insurance Entities

.01 The checklists and illustrative financial statements in this section have been developed by the AICPA Accounting and Auditing Publications Team to serve as nonauthoritative practice aids for use by preparers and auditors of financial statements. They have not been reviewed, approved, disapproved, or otherwise acted on by any senior technical committee of the AICPA and do not represent official positions or pronouncements of the AICPA. Readers should be aware of the following:

• The checklists and illustrative financial statements do not include all disclosures and presentation items promulgated; as a result, pronouncements deemed unlikely to be encountered in financial statements of life insurance companies are not included.
• The checklists and illustrative financial statements are “tools” and in no way represent official positions or pronouncements of the AICPA.

.02 A description of the insurance industry and a description of common accounting and reporting features of stock life insurance companies are presented in the AICPA Audit and Accounting Guide Life and Health Insurance Entities (2006) (product no. 012636kk).

.03 The checklists and illustrative financial statements should be used by, or under the supervision of, persons having adequate technical training and proficiency in the application of generally accepted accounting principles, generally accepted auditing standards, PCAOB Auditing Standards, and Statements on Standards for Accounting and Review Services.

.04 Users of the checklists and illustrative financial statements are urged to refer directly to applicable authoritative pronouncements when appropriate. If you have further questions, call the AICPA Technical Hotline at 1-877-242-7212.

FSP Section 20,100
Introduction

.01 The function of insurance is to pool the risks of many persons who are exposed to similar risks. For a payment known as a premium, insurance companies undertake to relieve the policyholder of all or part of a risk and to spread the total cost of similar risks among large groups of policyholders. One of the primary purposes of life insurance is to provide financial assistance to named beneficiaries at the time of the death of the insured. The long-term nature of the coverage involving the risk of death—a risk that increases with age—is the distinguishing characteristic that sets life insurance apart from other forms of insurance. Traditionally, life insurance entities provided life and health products to protect against the loss of financial stability resulting from premature death or illness, and provided annuity products to protect against the risk of outliving one’s financial resources. The primary emphasis was on meeting the customer’s insurance needs. The provisions of the AICPA Audit and Accounting Guide Life and Health Insurance Entities (2006) (product no. 012636kk) apply to all life and health insurance entities including stock, mutual, fraternal, and assessment entities.

.02 The National Association of Insurance Commissioners (NAIC) codified statutory accounting practices for certain insurance enterprises, resulting in a revised Accounting Practices and Procedures Manual (the revised manual). The insurance laws and regulations of the states require insurance companies domiciled in the states to comply with the guidance provided in the NAIC Accounting Practices and Procedures Manual except as prescribed or permitted by state law.

.03 In December 2001, the AICPA issued Statement of Position (SOP) 01-5, Amendments to Specific AICPA Pronouncements for Changes Related to the NAIC Codification (AICPA, Technical Practice Aids, ACC sec. 10,840), which amends SOP 94-5, Disclosures of Certain Matters in the Financial Statements of Insurance Enterprises (AICPA, Technical Practice Aids, ACC sec. 10,630), as a result of the completion of the NAIC codification of statutory accounting practices for certain insurance enterprises.

.04 The amendments to SOP 94-5 included in SOP 01-5 require insurance enterprises to disclose, at the date each balance sheet is presented, a description of the prescribed or permitted statutory accounting practice and the related monetary effect on statutory surplus of using an accounting practice that differs from either state prescribed statutory accounting practices or NAIC statutory accounting practices.

.05 Those disclosures should be made if (a) state prescribed statutory accounting practices differ from NAIC statutory accounting practices or (b) permitted state statutory accounting practices differ from either state prescribed statutory accounting practices or NAIC statutory accounting practices, and the use of prescribed or permitted statutory accounting practices (individually or in the aggregate) results in reported statutory surplus or risk-based capital that is significantly different from the statutory surplus or risk-based capital that would have been reported had NAIC statutory accounting practices been followed.

.06 Those disclosures should be applied by a U.S. insurance enterprise, a U.S. enterprise with a U.S. insurance subsidiary, or a foreign enterprise with a U.S. insurance subsidiary if the enterprise prepares U.S. generally accepted accounting principles (GAAP) financial statements. If a foreign insurance enterprise that does not have a U.S. insurance subsidiary prepares U.S. GAAP financial statements or is included in its parent’s consolidated U.S. GAAP financial statements, the notes to the financial statements should disclose permitted regulatory accounting practices that significantly differ from the prescribed regulatory accounting practices of its respective regulatory authority and their monetary effects.

.07 SOP 01-5 also includes the following auditing guidance that has been updated as a result of the completion of the NAIC codification: SOP 95-5, Auditor’s Reporting on Statutory Financial Statements of Insurance Enterprises (AICPA, Technical Practice Aids, AUD sec. 14,310); SOP 94-1, Inquiries of State Insurance Regulators (AICPA, Technical Practice Aids, AUD sec. 14,290); and AICPA Auditing Interpretation No. 12, “Evaluation of the Appropriateness of Informative Disclosures in Insurance Enterprises’ Financial Statements Prepared on a Statutory Basis,” of AU section 623, Special Reports, as amended (AICPA, Professional Standards, vol. 1, AU sec. 9623, paragraphs .60–.81). The included auditing guidance has been approved by the Auditing Standards Board.

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