Last Updated 6/23/2026

Most insurers authorized to do business in the United States and its territories must prepare financial statements using Statutory Accounting Principles (SAP). These principles are outlined in the NAIC Accounting Practices and Procedures Manual (AP&P Manual). 

The AP&P Manual sets a national framework for statutory accounting, but it does not override state laws. Because of this, states may have differences based on two types of practices:

• Prescribed Accounting Practices: Rules set by state laws or regulations that apply to all insurers based in that state.
• Permitted Accounting Practices: Exceptions approved by a state regulator that allow an insurer to use accounting methods that differ from standard SAP and/or state prescribed accounting practices.

SAP serves two main purposes: 

1) to make financial reporting more consistent across insurers, and 

2) to help state insurance regulators monitor the financial condition of insurance companies. 

At its core, statutory accounting helps regulators determine whether an insurer is financially sound, or solvent. Solvency means the company has enough resources to pay policyholders and meet its obligations when they come due. It also means the company maintains enough capital and surplus to provide an adequate margin of safety required by law. Financial reporting is important to this process, as regulators rely on financial statements to assess and compare the financial strength of insurers. 

SAP was originally based on the framework of the U.S. Generally Accepted Accounting Principles (GAAP). Today it is maintained by the Statutory Accounting Principles (E) Working Group (SAPWG), which reviews accounting updates and addresses new issues. As a result, the SAP and U.S. GAAP differ in important ways. In general, SAP focuses on the balance sheet and an insurer’s ability to meet its obligations. U.S. GAAP focuses more on providing information to investors, often emphasizing the income statement.

SAP is built on three key concepts:

• Conservatism: Financial reporting should take a cautious approach to valuing assets and estimates. This helps protect policyholders by reducing the risk that an insurer’s financial position is overstated.
• Recognition: Only assets that are available to pay policyholder obligations should be included. Assets that cannot readily be used to pay current or future claims are excluded from the balance sheet and instead reduce surplus. Liabilities must also be recognized as they are incurred, including mandated liabilities, to arrive at the conservative estimates of liabilities and probable loss contingencies.
• Consistency: Insurers should apply accounting principles in a consistent way so regulators can meaningfully compare financial results across companies and over time.

The NAIC’s Statutory Accounting Principles (E) Working Group (SAPWG) is responsible for developing, maintaining, and updating statutory accounting guidance through the Accounting Practices and Procedures Manual (AP&P Manual). The Working Group regularly reviews emerging accounting issues, considers input from regulators and industry stakeholders, and adopts revisions to improve clarity, consistency, and effectiveness in statutory reporting. These updates may result in new or revised Statements of Statutory Accounting Principles (SSAPs), which represent the highest level of authoritative guidance within the statutory accounting framework.

As part of this process, the SAPWG evaluates all authoritative U.S. GAAP guidance for its relevance to statutory accounting. Each standard may be adopted, adopted with modification, or rejected, depending on whether it aligns with statutory objectives such as solvency regulation and policyholder protection. The individual Statements of Statutory Accounting Principles (SSAPs) documents these decisions which are also summarized in Appendix D – GAAP Cross-Reference to SAP of the AP&P Manual, providing a transparent record of how U.S. GAAP standards are incorporated into, or excluded from, statutory accounting.