Statutory accounting principles, often abbreviated SAP, are the accounting standards prescribed by state insurance regulators for reporting the financial condition of insurance companies. SAP is designed to emphasize solvency and the ability to meet policyholder obligations, favoring conservative valuation of assets and liabilities over earnings maximization. Under SAP, certain assets are non-admitted, reserves are often higher, and capital requirements are more stringent than under generally accepted accounting principles (GAAP). Insurers file statutory financial statements with state insurance departments and the NAIC, which use SAP-based metrics such as risk-based capital ratios to monitor solvency. Understanding statutory accounting principles is crucial for evaluating carrier strength and interpreting financial statements used in due diligence.

Advisors hear about statutory accounting principles in carrier presentations, rating agency reports, and wholesaler discussions of risk-based capital and surplus. They may not prepare SAP statements themselves, but they rely on SAP-driven metrics to judge an insurer's ability to back long-term guarantees. When comparing carriers, advisors consider statutory surplus, RBC ratios, and reserve levels in addition to ratings and distribution support. They also recognize that differences between SAP and GAAP can make insurer profitability and capital positions look different depending on the framework. Understanding statutory accounting principles helps advisors have informed conversations with clients and centers of influence about carrier financial strength and regulatory oversight.